A Demon Of Our Own Design is a provocative title for a first book. But that's just the kind of work Richard Bookstaber does.

Richard has been a practitioner in the world of finance for many years. He is currently the Head of Risk at Fabric RQ, and previously worked at Bridgewater, Morgan Stanley, Solomon brothers, and was the Chief Risk Officer at the University of California.

These roles have put him at the center of some of the critical crises of the last three decades – working with portfolio insurance during the 1987 Crash while at Morgan Stanley, and with the aftermath of the 2008 Crisis while in the regulatory sphere.

In this episode, he talks with Greg LaBlanc about his experience during those important moments in our nation's financial history, the trustworthiness of most economic models, and the human dynamics of economics.

Episode Quotes:

On the nature of markets:

"That's the way the markets are. The markets inherently are human. As humans we create and we innovate, so things constantly are changing. We have experiences and based on our experiences when we change, that changes the nature of the markets as well."

On Creativity:

"Creativity is only creative because it's something that didn't already exist and wasn't already expected."

On risk managers and using models:

"But risk managers, I think by and large knew that their models were somewhat bankrupt when it came to dealing with crisis. Because of the reasons I said, it's no mystery to people in risk management that the risk models they use only work if a future looks like the past, because they're measuring the future based on the past. I don't think it's the case that they would say, yeah, we've got this model and hey, if some crisis occurs, we'll deal with it. They're saying we have this model, and essentially it's only good as far as it goes. But that's all that they have, that's all that tends to be taught."

Show Links:

Markets, Risk, and Human Interaction feat. Richard Bookstaber

unSILOed with Greg LaBlanc