The Futures: The Rise of the Speculator and the Origins of the World's Biggest Markets by Emily Lambert

Author:Emily Lambert [Lambert, Emily]
Language: eng
Format: epub
Tags: Business & Money, Investing, Commodities, History, Americas, United States, State & Local
ISBN: 9780465022977
Google: 5i1F0jIMpz4C
Amazon: B0047T86CY
Goodreads: 10091560
Publisher: Basic Books
Published: 2010-08-15T06:00:22+00:00

Sandor took a road trip around the Midwest and rode a tractor, all in the name of learning more about the business. He wrote a new futures contract for wheat, to be traded alongside the Board’s existing wheat contract. It launched in 1974 but didn’t catch on. Many things had to line up just so in order for a contract to work. In the case of wheat, the big grain companies were already trading that kind of wheat at a smaller exchange in Kansas City, Missouri. They didn’t want to move their trading to Chicago.

That same year Sandor wrote a futures contract for gold—as did his rivals at other exchanges—to be traded the moment President Richard Nixon lifted a four-decade ban that limited people who liked gold to owning it in the form of gold coins, jewelry, and dental crowns. When he did, individuals could begin to own—and trade—gold bullion.

The traders usually stayed happily inside their agricultural box, gold and silver futures notwithstanding. But one contingent of directors was interested in another futures contract rooted in the world of finance. They were particularly keen on launching a future having to do with interest rates. Sandor bounced an idea off wheat broker Les Rosenthal, who was the head of the Board’s committee in charge of finding and launching new products. It was confusing, but Rosenthal listened long enough for Sandor to start to make sense. Sandor proposed a futures contract on home mortgages, which was, politically speaking, a futures contract on a white house with a picket fence—in other words, the American Dream.

Real estate was a pretty boring business at the time. People bought homes and lived in them for decades. Interest rates had risen slowly and predictably. The real estate market was financed primarily by thrifts, also called savings and loans. Bankers there had cushy jobs and often said they were in the 3-6-3 business: They borrowed money at 3 percent, loaned it out at 6 percent, and could be on the golf course by 3:00 in the afternoon. And most kept loans on their books. Thrifts were careful about who they lent money to.

Sandor watched the real estate market change. With John Kennedy in the White House and the stock market booming, people were flocking to California to spend their days in sunny paradise. In the real estate boom that followed, thrifts couldn’t keep up and offer all the loans people wanted. Then interest rates went up and disrupted the 3-6-3 business model. When rates rose, the thrifts were stuck borrowing money at 3 percent. Federal law restricted how much they could pay depositors. But when they offered just 3 percent, their depositors saw that they could get more interest elsewhere—for instance, by putting their money in a money market fund or by buying a Treasury bill. So they took their money and left. When that happened, the thrifts had no money to loan out. And when they didn’t make loans, the housing boom turned into a bust, and the economy tipped toward recession.

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