A First-Class Catastrophe

Henriques (The Wizard of Lies: Bernie Madoff and the Death of Trust) turns the clock back to Oct. 19, 1987, a date better known as “Black Monday,” when the Dow Jones plummeted 508 points—22.6% of the market at the time. Her report begins with the 1980 crisis in silver trading and then moves quickly onto the financial-futures markets, (the introduction of which “fundamentally changed the way the traditional stock market worked”) and continues with the rise of institutional investors and introduction of innovations such as computerized program trading. The SEC and other regulatory agencies, meanwhile, are shown to be “poorly equipped, ridiculously fragmented, technologically naive, and fatally focused on protecting turf rather than safeguarding the overall market’s internal machinery.” Henriques’s confident, fast-paced, and thoroughly researched narrative also features plain-English explanations of relevant jargon and insightful profiles of the investors, regulators, and economists on the crash’s front lines. Thanks to Henriques’s attention to detail, her book stands as an irrefutable argument against efficient-market theory—which understands stock-market performance as fundamentally the result of “rational and well-informed decisions”—and for wiser regulation of U.S. financial markets. It’s a must-read for anyone who wants to understand why financial markets lurch from crisis to crisis and are still so frighteningly susceptible to crashes today. (Sept.)