CNBCfix review: The crude reality of getting rich in The Asylum
Posted: Tuesday, November 8, 2011
Leah McGrath Goodman has more interviews than opinions in her misnamed The Asylum: The Renegades Who Hijacked the World's Oil Market, which should've been titled Recent History of the Nymex. From years of covering the crude trade for Dow Jones and others, McGrath Goodman has one of those newspaper conundrums: a story without an angle. Her book is less a story than a timeline.
Rather than posit theories about why oil costs what it does or which conspiracies may be afoot (in fairness the title does not convey that theme either, though it's a popular trend), McGrath Goodman for some reason is most interested in the role of Nymex chairman, and 1) how each one got there, 2) what if anything each did to distinguish himself, and 3) how and why each got forced out. There is an impressive collection of details here, but it's far more bureaucratic than biographical.
What many readers will find surprising is how few of these characters they've actually heard of. As one after another fades into oblivion, readers may wonder, Why do I need to care about these people? That question largely goes unanswered.
Sometimes the most useful way to begin a book is to start in the back. McGrath Goodman's acknowledgments include at least 65 names, a strong indication readers are going to experience more minutiae than point of view. A list so voluminous is also a typical feature of first-time authors, which, according to McGrath Goodman's page at Amazon.com, is indeed the case here. A key source is known as "Deep Throat," which doesn't exactly carry the same fresh panache as it did the first time around.
Starting from the front, the subtitle, "The Renegades Who Hijacked the World's Oil Market," is at best an overstatement. Nothing, according to details in the book, was actually ever "hijacked." A financial exchange devised trading contracts. Some fizzled. Some caught on. Heating oil and West Texas Intermediate happened to be ones that caught on. Various forms of tug-of-war were conducted with regulators, other exchanges, and potential new markets. That is basic business.
McGrath Goodman describes Nymex traders collectively as lucky, sex-crazed (and in some cases, drug-dealing) beneficiaries of a market heaped upon them. They used to do potatoes, but there was enough chicanery to get that quashed, and whoever looked forward to a life trading potatoes anyway?
According to the book, the modern Nymex was created when Michel Marks, an accidental chairman at age 27 though he clearly was on that path, put together out of desperation a heating-oil futures contract in the late 1970s. Initially a hard sell, the contract took off as smaller, family-owned operators began to trust its reliability and appreciate its pricing. Within short time, the Reagan administration's energy deregulation opened the door the Nymex's Sunday punch, the West Texas Intermediate contract.
Marks' contracts, aside from bringing vast wealth and women to the traders, also brought some degree of transparency to oil prices and a virtual toll road to the market running right through the Nymex. Once heating oil caught on, it seems, absolutely everyone in the pits was making more money than he knew what to do with. Though the boom-bust swings of trading are noted in several passages, tales of people who traded themselves into bankruptcy are essentially nonexistent in this book. Presumably the secret to getting ahead in oil trading is simply to get on the floor, similar to how people speak of Goldman Sachs. Only at Nymex, the boundaries of acceptable behavior are much more disproportionate to typical civilization standards.
Not surprisingly in such an environment, the Nymex board is seen as dysfunctional, ineffective, unenlightened, even downright incompetent. Few initiatives ever succeeded, because nobody trusted each other. The biggest sin was anything that disrupted the status quo. The most famous member is not an executive but a trader, Mark Fisher, who never sought the chairmanship because it actually would've been a step down from his status, McGrath Goodman writes (on Page 174 of hardcover edition).
Very disappointingly, McGrath Goodman decides that board-of-director conflicts are the most interesting ones to tell. The chairmen you might never have heard of were beleaguered either by their insubordinate presidents or rogue traders you've definitely never heard of. Her star witness is not so much Marks, whom the timeline begins with, but Zoltan Louis Guttman (McGrath Goodman is fascinated by his given first name), who apparently had the most newsworthy tenure. And, apparently, contributed as much or more than anyone else to the author. It feels like almost every chapter includes an account of Guttman getting screwed, such as, on Page 163, his lament that "No one said boo to me" after the 1993 World Trade Center bombing and it was up to him to figure out how to clear the day's trades. McGrath Goodman doesn't cloak her disdain for the apparently inept CFTC punishment process. She outlines the disciplinary case against Guttman with probably more arguments than his legal team had time to make.
It's possible McGrath Goodman's fascination with Guttman stems from his own self-imposed mystery. She writes on Page 154 of having "wasted a good deal of time trying to find Guttman," who had become "the invisible man." Guttman, Marks and others seemed to insist on unusually discreet meetings for their interviews, as if they were about to divulge takeover offers rather than half-hearted old grudges. There's a reason they haven't been heard from; they've had little to say.
Others like Danny Rappaport and Vincent Viola and Mitchell Steinhause have even far less to share and fade out in the book about as quickly as they emerge. McGrath Goodman is most skeptical of James Newsome, who was not Nymex chairman but president, only after he arrived from the CFTC. She writes with wide-eyed wonderment how a Chicago Tribune reporter, Susan Diesenhouse, actually gasped with "cheeks blazing, utterly incredulous" when Newsome at a conference referred to the Nymex and CME as "self-regulatory" and that it was up to McGrath Goodman and other veteran reporters to offer "comfort, support, ice water."
That's hardly the only passage where The Asylum lacks a needed heavy-handed editor. The book's gambling-in-the-casino moment is when McGrath Goodman annoyingly tells, with practically step-by-step detail, of seeking an ATM at Cordato's Deli and being shocked to discover traders using its back room as a way to liaison with strippers of the Pussycat Lounge.
The author also has a bizarre fascination with an insignificant war game played by select traders against Marine and Navy officers on the USS Intrepid. McGrath Goodman takes the results reported by Gary Lapayover at face value, that the traders "annihilated" the military officers simply because they didn't care about casualties, which they'd have no reason to considering they, unlike the military, were only playing a game.
The two most interesting people in the book are undoubtedly Mark Fisher and Jeff Sprecher, though Sprecher, an outsider to all of this, is mostly every chapter's boogeyman to the lucrative tradition of pit trading. A visionary, Sprecher is nevertheless cast as someone willing to copy another's product (Nymex closing prices) and skirt the intentions if not technicalities of regulation to realize the potential of his business plan, sort of a Bill Gates to the Nymex's Steve Jobs. While restating Sprecher's background several times (another editing problem, as is the strange repetition of who David Greenberg's father is), McGrath Goodman apparently has nothing from Sprecher personally on his competition with Nymex, a notable absence.
Fisher's antics will not appeal to all readers but his success and skills are most admirable. Self-made, and unconventionally smart, representing a meritocracy, able to tell (at least some of) those in authority to take this job and shove it. Famous for outlandish wagers and pranks, blatantly judging people by "dick-measuring" (assessing their apparent net worth), Fisher is also painted as an anchor of the exchange with accurate judgments on major decisions. Surely those were self-serving, but this is hardly the Salvation Army.
McGrath Goodman has billed some of the book's purpose as providing eye-opening revelations about drugs, firearms and sex at the exchange and that authorities and exchange officials generally looked the other way. It is not at all surprising that traders of this wealth and audacity dabbled in any of the 3. The drug and firearm episodes are forgettable, and even the sex is uninteresting. Hookers were flown into conferences and were commonplace in foreign cities; strippers were sought at favorite bars, wives and mistresses were brought to the same parties. Tell us something we didn't already suspect.
McGrath Goodman's bio begins with her tenure at Dow Jones Newswires, where she certainly absorbed the concept of nut graf. Yet her book includes none. We have a beginning, and the years go by. Moneymaking and debauchery and backstabbing occur. And then we have an end. And the moneymaking and debauchery and backstabbing presumably are still occurring, only in more discreet fashion, because the moneymaking was so intense that buttoned-down types eventually got involved.
Grasping for a theme, one might settle on CFTC incompetence allowing a cornering of the world's most precious commodity. But despite numerous observations, there's not enough in this book for that, certainly nothing any worse than Madoff, Glass-Steagall, the ratings agencies, AIG, Fannie, etc. The author notes in numerous passages that over-the-counter trading is where the biggest dollars, and risks, exist. The feds enabled the Enron loophole, and the "bona fide hedging" exemption to benefit Goldman Sachs. A lot of people doing the regulating apparently also stood to benefit from the system. One can infer this is much like baseball and steroids, with neither players nor ownership having any interest in seeing the big stars suspended or inhibited in any way.
In an appearance on CNBC promoting the book, McGrath Goodman said that traders alone couldn't "hijack" the market, but that they benefitted from Washington loopholes. She complained that position limits are a "red-herring discussion" and suggested oil price might be most distorted by the "leverage issue" that could be tempered by higher margins.
The interest of laymen in the oil markets today is mostly about gasoline price. The general public cares little if a trader got a lap dance last night or brought a hooker into the pits as secretary for a day. But why does crude trade over $100 a barrel, how come it's $4 at the gas pump when barely a decade ago gasoline could be found under $1?
There's a likely answer for this that goes unstated in 379 pages — there is simply too much money in the world's oil market. This is neither the fault of regulators nor traders. The same could be said of tech stocks in 1999 and housing in the late 1990s and early part of this century. It could be inferred that the problem with the oil market isn't collusion, but simply a lack of other promising investments this century to entice the world's money managers, save for perhaps gold, which unfortunately isn't nearly as plentiful nor as useful. Investors are trying to find a sure thing, and oil's as good of a candidate as anything.
The Western World is wracked by debt and bubbles and aging populations. U.S. stocks are basically flat for a decade; housing, considered by many a lock for building wealth, went bust in an even worse way.
Emerging market stocks have maintained a bid, but with often-steep volatility, and everyone's favorite investment, China, is mostly closed to outsiders.
And so we are left with oil, and gold, and perhaps agriculture and social media stocks, the last stand of outsized pricing in a still-deleveraging world that has put just about everything else on sale.
One could even go far enough to infer from this book, despite the notion of 20something traders rolling in obscene money, that the alternative to their system is worse — a closed, opaque pricing model run by OPEC and Big Oil such as existed until the 1980s.
McGrath Goodman does sprawl, but her writing is sound and disciplined. She touches on topics that run deeper than her focus, such as on Page 91, when she notes that Michel Marks successfully got already-rich traders to support the WTI contract, by appealing "to their greed" and predicting a tenfold increase in seat value, yet another example, like already-super-rich baseball players who claim they want to play for a champion or in their hometown but somehow usually just pick whichever offer is tops financially. Human beings are hooked on something, and it's not so much oil and drugs.
It's doubtful most of the people in this book will object to McGrath Goodman's characterizations, but maybe some did. She writes both in the acknowledgments and in subsequent Web postings of her concerns as to how traders will view The Asylum. She's somewhere between admiration for their work habits and financial acumen, and mild disdain, almost more of a dubious fascination, about the debauchery and backstabbing they leave behind.
McGrath Goodman succeeds, seemingly in spite of her intentions, at raising an interesting prospect for humble readers: If this is the way to get rich, do I really want to be rich? The money's great. So are the hours. Everything else? McGrath closes Chapter 3 on Page 76 with a sad tale of an Orthodox Jewish trader wearing a yarmulke, chastised by a fellow Jewish trader who says, "You shouldn't be wearing that down here, son. You'll be disrespecting the faith doing what you're about to be doing."
Fortunately/unfortunately, few will ever have the chance to enter this market. The Asylum will appeal most to those who have actually been there.
For all of their massive net worths and semi-stranglehold on oil prices, the Nymex crew is not particularly relevant in pop culture. Walk into McDonald's and ask the customers if they've ever heard of the characters in this book. Maybe 1 out of 100 has. Chances are the others never will. The days of colorful, dysfunctional pit life, McGrath Goodman concludes, are basically over. More computers, less regulation. But still plenty of money to go around.
The Asylum: The Renegades Who Hijacked the World's Oil Market (2011)
Featuring: Michel Marks, William Bradt, Zoltan Louis Guttman, Martin Greenberg, Daniel Rappaport, Vincent Viola, Mitchell Steinhause, Richard Schaeffer, Mark Fisher, Gary Glass, Harold Magid, Bobby Sahn, Randy Warsager, Bill Perkins, Steve Karvellas, Ben Kaufman, Mark Lichtner, Gary Lapayover, Sherry Collins Zabel, Lenny Williams, Richard Leone, Rosemary McFadden, David Greenberg, Stuart Smith, Bo Collins, John D'Agostino, Wendy Gramm, Phil Gramm, Brooksley Born, Dr. James Newsome, Greg Mocek, Francis Marks, J.R. Simplot, Leo Melamed, Jeff Sprecher, John Arnold, Brian Hunter, Bill O'Reilly, Hugo Chavez, Eric Bolling, Alan Kaufman, John Scialdone, Chris Adams, Centaurus Energy Advisers, Ted Williams, John Morace, Hyman Warsager, Patti Scialfa, Bruce Springsteen, Loree 'Rip' Collins, Dick Leeds, Richard Levine, Mike Milano, Stanley Meierfeld, P.J. Taggares, Stanley Levin, Paul Mahler, Heinhold Commodities, Herschel Smith, James Newsome, Jack Stern, Jim Stone, Michael Dukakis, Ed Muskie, Frank Church, Henry Jarecki, Mocatta Metals, Helen Gurley Brown, Alan Greenspan, Jimmy Carter, James Forrestal, Lenny Williams, Dolly Parton, Glen Campbell, John Tafaro, Harold Fisher, Emmett Whitlock, Arnold Safer, John D. Rockefeller, Alan Lotterman, Howard Hazelcorn, Joel Faber, Jonathan Arginteanu, Thomas McKiernan, Lenny Elkins, Vito Bertolini, Herbert Filer, Carl Icahn, Goldman Sachs, Richard Leone, Ronald Reagan, Richard Nixon, Philip Johnson, Bob Black, Harold Bernstein, Pat Mazzarulli, Mark Dickstein, Dan Aykroyd, Eddie Murphy, Jamie Lee Curtis, Linda Gray, Robert Downey Jr., Billy Mainwald, Daniel Yergin, Phibro, John Elting Treat, Tommy McKiernan, Louis Marks, Jan Marks, Bob Dylan, Herman Guttman, Cathy Douglas, William O. Douglas, George Gero, Alvin Brodsky, Hunt brothers, Jimmy Sledz, Karsten "Cash" Mahlmann, Lou Dobbs, Robert Bruno, Richard Saitta, Oscar Wyatt Jr., Marianne Hughes, Patrick Thompson, Bernard Nussbaum, Andre Suan, Kenneth Lay, Jeff Skilling, T. Boone Pickens, Ernest Hemingway, Bruce Kovner, Julian Robertson, Louis Bacon, George Soros, Jon Arginteanu, David Rousso, Robert Halper, Barry Bohrer, Bernie Madoff, Jerry Markham, Natale Laurendi, Frank Hogan, Robert Kennedy, Patricia Hearst, George H.W. Bush, Bill Clinton, Les Faison, David Dinkins, Greg Boyd, Paul Tudor Jones, Clint Eastwood, Francis "Bing" West, David Childs, George Painter, Lenel Hickson, Julian Raber, Robert Rubin, Lawrence Summers, Vincent Foster, Robert "Red" Bone, Lloyd Blankfein, Gary Cohn, Neal Shear, Conrad Goerl, Bruce Ratner, Mary Higgins Clark, Patty Clark Derenzo, John Conheeney, Yi Chuan, Silvio Berlusconi, Rao's, Chris Adams, Joshua Rosenthal, Al Gore, George W. Bush, Barack Obama, Jay Hakes, James Newsome, Susan Diesenhouse, Will Acworth, Don Wakeman, Mary Margaret Pomeroy, William Pomeroy, Mei Mei, Thad Cochrane, Mark Keenum, Trent Lott, Steven Kean, James Baker, Steve Berkson, Sanford Goldfarb, John Koeltl, Greg Mocek, Alan Sobba, Lenny Williams, John Arnold, Stephen Obie, Willie Nelson, Robert Falco, Melissa Francis, Kenneth Raisler, Patrice Blanc, Kevin McDonnell, Betty Brazil, Gordon Rutledge, Saeed Al Muntafiq, Seth Cohen, Steve Schwarzman, Pete Petersen, Bill Ford, Phillip Bennett, Tom Harkin, Saxby Chambliss, Sharon Brown-Hruska, Javier Loya, Jon Bon Jovi, Linda Fulton, Grant De Patie, Darnell Pratt, Jeff Lenard, Charles Federbush, Chinh Chu, Craig Donahue, Peter Thiel, LL Cool J, Crobar, Cataldo Capozza, Mark Rifkin, Dick Grasso, Tommy Ryan, Brian Hunter, Amaranth, David Chasman, Bess Levin, Milton Friedman, John Maynard Keynes, John Thain, Rudolph Giuliani, Scott Parsons, Heather Shemilt, Harpreet Harry Arora, Mike Maggi, Mike Loya, Paul Horsnell, Richard Arens, Albert Helmig, Gary Milby, Gregory W. Smith, Robert Morgenthau, Dianne Feinstein, Michael Greenberger, Sheikh Mohammed bin Rashid Al Maktoum, Phillip Thorpe, Henry Paulson, Ben Bernanke, Gary Gensler, Steven Chu, Col. Edwin Laurentine Drake, Joseph Facciponti, Rikers Island, Dale Chihuly, Michael Ayoub, Bill Murray, Rosie Perez, Noah "Soggy" Sweat Jr., (Acknowledgments) John Cochrane Duncanson, Sara and Howard Brathwaite, Thomas and Kathy McGrath, Kathleen McGrath, Rebecca Jean Helms, Cassandra Rea Holloway, Cheri Carroll, Lauren McCracken, Dayna Kanary, Kara Brickman, Dr. Cael Keegan, Victoria Hart, Sioban Hickie, Stephanie Cochinos, Shayna Sebold, Christine Nuzum, Colleen Debaise, Paul Vigna, Leia Parker, Beth Heinsohn, Susan McIntosh, Tony Tassell, Adrian Harpham, Craig Haines, Michael Guido, Greg Perrault, Axel Bogetic, Mitchel Coffman, Sonwha Lee, Shane Finemore, Edward Robinson, Peter Maturczyk, Dwayne Drexler, Daniel Masters, Beatriz Abella, Dr. Adam Kantor, Bullar Andrew Holmstrom Spence, Russell Andersson, RBS, Kevin Morrison, Mauro DiPreta, Jennifer Schulkind, Olga Gardner Galvin, Andrew Dowell, Michael Siconolfi, Eugene Colter, Kathleen Seagriff, Jim Impoco, Richard Blake, Rachel Eve Pine, Adam Johnson, Virginia Cochrane, Sharon Sergeant, Ben Kaufman, John D'Agostino, Sharon Abramzon, Deep Throat, Zoltan Louis and Connie Guttman, Michel Marks, Sherry Collins Zabel, Richard Schaeffer, Leo's Bagels, Edward Reiher, Dr. Denny Wilkins