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Escape to the Futures
By Leo Melamed
THE NEW YORK TIMES
BOOK REVIEW
September 22, 1996
By Martin Mayer
TRADING PLACES
In his newfound land, Leo Melamed
rose to the top of the commodities game.
Few memoirs
begin as memorably as Leo Melamed’s. He is an 8-year-old boy
riding on the Trans-Siberian Railway with his parents, fleeing
Lithuania in late 1940 on a transit visa issued by a compassionate
Japanese consul. He watches his father play chess with a bearded
old man, who seizes a pawn and calls "Shach!" - Yiddish
for "Check!" Mr. Melamed’s father "sat there, he later explained…
searching for the best strategy among three options."
Mr. Melamed
is one of the shapers of the modern world, the inventor of organized
trading of foreign-currency futures contracts, short-term interest-rate
futures, and futures on the Standard & Poor’s
index of stocks in 500 large corporations. Under his leadership,
the Chicago Mercantile Exchange, by trading these contracts, rose
from a shabby, dubious market for futures in butter, eggs and onions
to the largest commodities exchange in the world.
As he writes
in "Leo Melamed: Escape to the Futures," Mr. Melamed
came to the exchange by accident: a law student in 1953 looking
for part-time work, he had answered an advertisement from Merrill
Lynch, Pierce, Fenner & Beane because he thought it was a law
firm. But he got hooked on commodities trading, which is almost
but not quite the same thing as gambling. He supported a money-losing
trading habit for several years as a lawyer, then decided that
if he had to, he could make his living on the trading floor. This
decision in 1965 coincided with a sudden eruption of interest in
the futures contract on frozen pork bellies, and Mr. Melamed never
had a reason to look back. He became chairman in 1969, at the age
of 37. In the next 22 years, he shepherded the exchange through
the first imposition of Federal regulation, initiated a cadre of
contracts where the underlying commodity was a financial instrument
rather than a metal or an agricultural product, and won Federal
approval for the contracts that simply involved losers paying winners---without
that approval this practice would have been prohibited by state
gambling statutes.
The exchange’s
budget increased 500-fold; the value of a seat rose 150-fold
and the "derivatives" the exchange traded became
central to modern banking and commerce. The members followed Mr.
Melamed unquestioningly, because he remained one of them---a trader
in the market every day, interrupting any meeting with anybody
to call the floor and place his bets---and because his contracts
made money for them. And because they knew that behind the hyperbole
and the vanity (he reports that someone once told him he was a
legend in his own mind), he was an honest man.
The culmination of Mr. Melamed’s work was to be the creation of
Globex, a computer-based trading system developed with Reuters
as a place to buy and sell futures and options contracts around
the world, 24 hours a day. In 1991, having retired from the Mercantile
Exchange, he became chairman of Globex. But traders worried that
screen-based access would diminish the trading floor. They pushed
Mr. Melamed aside, and Globex has been allowed to wither on the
vine.
Mr. Melamed
does not speak too unkindly of these former friends, or indeed
of anyone. "Escape to the Futures," written with the
journalist Bob Tamarkin, is too long because there are so many
friends about whom he wishes to tell nice stories, some of which
are more interesting than others. Some of the history and economic
analysis is confusing doctrinaire, and his hero worship of right-wing
academic economists can be cloying.
"Escape to the Futures" ends with Mr. Melamed recounting how
he was recruited by the White House to examine Hillary Rodham Clinton’s
trading records. Though she had been in with a bad lot (as Mr.
Melamed knew, having fined her brokers $250,000 in 1979), Mr. Melamed
found and certified that she personally had done nothing wrong.
She called him from Rome, where she was with the President on his
D-Day commemorative visit, to thank him. Looking back on the 8-year-old
who fled the Nazis, Mr. Melamed writes, "I had come a long way."
Martin Mayer,
a guest scholar at the Brookings Institute, is the author of "Market."
Find
this book at Amazon.com
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