Escape to the Future by Leo Melamed

The story of the building of the Chicago Mercantile Exchange.

It is difficult not to warm to somebody who can quote a friend's teasing comment that he is 'a legend in his own mind'. That attitude is typical of Melamed. His book occasionally wavers on the brink of turning into one continuous recital of triumphs, but as the above joke shows he seems to have managed to keep his ego within reasonable bounds. Of course, in steering the Chicago Mercantile Exchange to one the greatest futures trading exchanges on the planet, he has much to be proud of.

Bridge player, game boy wizard, qualified lawyer, expert trader, Yiddish theatre lover and a fanatic about fast cars, Melamed's story is about how an Eastern European refugee escaped the ravages of second world war Europe for the US, and once there built up a classic American success story.

At over 400 pages, the book is perhaps a little long. Also, the decision to use a ghost writer is a little strange. These two features mean the book is more like an official history of the exchange as seen through the eyes of its founder and leader in once capacity or another for almost 40 years. Indeed, the ghost writer, Bob Tamarkin, actually wrote the official history of the exchange.

The book is packed full of details narrating the growth of the exchange from trading agricultural futures to becoming one of the biggest traders of financial futures, such as the Standard and Poor's futures contract, the Eurodollar contract, interest rate futures and other products. The style is clear and readable.

Above all, one suspects this book will be a prized possession of the citizens of the fiercely proud city of Chicago. Others, unless they are fellow traders or financial historians, might feel the level of detail describing, it seems, every trip outside the US and most of the trips in the US, the lobbying meetings, the board meetings, the promotions and the tributes to friends and acquaintances a shade repetitious.

The book has one stand out feature, however. It's being translated into Chinese, and indeed Melamed was in China this spring to visit the fledgling Shanghai Futures Exchange. This raises some fascinating questions.

Shanghai, as we being constantly informed, is keen to build itself into one of the biggest financial exchanges in Asia.

But despite its shiny skyscrapers, many Western observers are unconvinced. "Shanghai has neither freedom of information nor the freedom to trade currencies - how can it possibly compare to say, Hong Kong," says one sceptical banker.

Melamed's book become much more interesting if you read it wondering how applicable his talents, ideas and accomplishments are to China.

The early part of the book, describing the un-reformed exchange, when the quorum for member meetings was as high as 300 and when traders routinely tried to corner the market in items such as eggs, butter meat and onions, should give those pessimistic about the current state of China's financial markets pause for thought.

The generation Melamed learned his trade with was as hard as nails and pretty much devoid of moral qualms. The anything goes mentality was accepted by the exchange, since it was run by its members. The only thing that matched the greed of the old gang was their conservatism. This noxious combination was in danger of marginalizing the exchange until Melamed managed to drag it into the modern era.

Melamed's motivation is very straightforward, but one wonders whether it will be reproduced on the Chinese exchanges. He says he's firm believer in the free market. In his early days especially, he was also fiercely ambitious and idealistic.

"After all, capitalism is an ideal just like any other," the young Melamed tells himself just before the difficult task of telling his father he is giving up a more predictable career in law to trade commodities.

Melamed put his money (or lack of it) where his mouth was. He was not paid for his work for decades, let alone benefiting from a cut of the billions of dollars worth of trading on the exchange he encouraged.

As a result, Melamed had to earn a living through trading while also attending to the ever more pressing business of the exchange and raising a large family.

That dual lifestyle workload leads to some of the best passages in the book as he juggles making phone calls to make his trades while lobbying top politicians to increase their understanding and support of his beloved 'Merc'.

It's no wonder the man was smoking four packs of cigarettes a day and living off countless cups of coffee.

His interactions with the US politicians were an eye-opener for this (English) reviewer. It was perfectly normal to pay congressmen $2000 dollars a shot to come down to Chicago and swan around the exchange under the eyes of the local media.

To increase his leverage with the central government, Melamed even creates a money spinning organization called a Political Action Committee, which raises funds for friendly politicians, while the members of the exchange are all happy to hand over thousands of dollars in personal donations, on top of the regulated amount handed over by the exchange.

The relationship of Chicago, a provincial city in Chinese terms, to the capital is reminiscent of similar relationships in China. Unlike Chicago, however, Shanghai has for the past decade been privileged over any other city. Chicago has always had to compete with dozens of almost equally dynamic cities, especially New York.

Also worthy of comparison is Melamed's cultivation of networks. That's clearly a skill that would have helped him in China. He often succeeds in creating alliances vital to cause, not least in obtaining exemptions or amendments to legislations, for example in the tax arena, which might have curtailed the growth of the exchange.

Despite being what was earlier described as a classic American success story, it is clear that many complex elements had to combine successfully before that story unwound. Melamed's quote about capitalism being an ideal just like any other best sums up the contradiction of a man who created one of the biggest exchanges in the world - mostly for free.

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