Who
Were We?
Success
of the International Monetary Market (IMM) of the CME defied
all the odds.
"It's
ludicrous to think that foreign exchange can be entrusted to
a bunch of pork belly crapshooters," proclaimed a prominent
New York banker on the eve of the launch of the IMM.
"The
New Currency Market is strictly for crapshooters," echoed Business
Week. "If you fancy yourself an international money
speculator but lack the resources...your day has come."
And
in 1976, at the opening of the IMM's interest rate market, the
respected Economist mocked our efforts with the following
nasty missile:
Like
Linda Lovelace, the girl with the deep throat, the International
Monetary Market (IMM) of the Chicago Mercantile Exchange tries
to make money by being more outrages than its rivals. Now that
its currency futures market is well established-it was opened
in 1972 by women in fancy dress-the IMM has this month opened
a trading pit in the United States treasury bill futures. Bidding
for the government paper takes place on the same floor as for
pork bellies, live cattle, and three-month eggs.
A
decade later, at the opening of our stock index futures market, Barron's seemingly
joined the nay-sayers with the following derisive comment: "Like
their lightning-paced video game counterparts, stock index futures
offer instant gratification or instant annihilation depending
on the accuracy of your impulses and quickness of your reflexes."
Of
course, the media and other detractors missed the point entirely.
The IMM was not out to beat anybody, nor were we trying to resurrect
or reinvent something. This was a brand new invention-financial
futures. In 1972, it represented a bold experiment to create
new markets to respond to an era in transition, eventually known
as globalization. We were attempting to draw a road
map for the financial geography that lay ahead, trying to provide
business and finance the same risk transfer mechanisms that their
agricultural counterparts had been successfully using for more
than 100 years. A mechanism they would soon dearly need.
Revenge
is sweet! In 1986, Professor Merton Miller, the 1990 Nobel Laureate
in Economics, ranked the invention of financial futures as "the
most significant financial innovation of the last twenty years." And
in March of 1999, Alan Greenspan had this to say about the development
and expansion of financial derivatives in general:
By
far the most significant event in finance during the past decade
has been the extraordinary development and expansion of financial
derivatives....These instruments enhance the ability to differentiate
risk and allocate it to those investors most able and willing
to take it.....a process that has undoubtedly improved national
productively growth and standards of living.
So
how did the IMM defy the odds? How did the IMM succeed in introducing
the concept of financial futures which today has been embraced and
copied in every financial center the world over? In
1982, at the gala celebration of the IMM's tenth anniversary-at which
the 1976 Nobel Laureate in Economics, Milton Friedman was Guest of
Honor-Leo Melamed attempted to answer this question. The
IMM's success, he suggested, can be better be explained by who
we were rather than by "how we did it:"
Who
Were We?
We
were a bunch of guys who were hungry
We were traders to whom it not matter
Whether it was eggs or gold, bellies or
The British Pound, turkeys or T-bills.
We
were babes in the woods, innocents,
In a world we did not understand,
Too dumb to be scared.
We
were audacious, brazen, raucous pioneers,
Too unworldly to know we could not win.
That
the odds against us were too high;
That the banks would never trust us;
That the government would never let us;
That Chicago was the wrong place.
The
traders became our army. They were our secret weapon.
Most of the world underestimated the power they represented.
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