He recalled the story of how he approached future Nobel Laureate Milton Friedman with his idea to launch futures on foreign currencies in 1972 prior to the break-up of the Bretton Woods accord. Friedman’s response was “you must do it,” but Melamed needed a champion and Friedman, for a fee, would write a feasibility study on foreign currency futures, which Melamed says is what gave the idea the credibility to succeed.
Melamed also recalled going to Chicago Mayor Richard J. Daley—a powerful mayor and politician on the national stage— a decade later to ask for rights to expand the CME building. (The young people in the audience may not have understood how Melamed, an impressive figure, described being scared in approaching the Mayor of Chicago over what could be considered a simple zoning issue, but at the time powerful national politicians’ knees would grow weak when they went hat in hand to see Mayor Daley). The International Monetary Market (IMM), which was created in 1972 to launch currency futures initially but also futures on different types of financial instruments, was growing and CME was fixing to launch futures on the S&P 500 stock index in 1982.
Mayor Daley asked Melamed what granting his request would do for the City of Chicago. Melamed responded, “Mr. Mayor, if I could build this building and expand the IMM to list stock index futures, I am going to move the financial center of gravity out of New York at least 10 feet. [Mayor Daley] said, ‘I like that, build the building.’ He was a great man. He understood the vision I had, understood what financial instruments could do for Chicago. Today, Chicago is the risk management capital of the world. Not only that, we are really a financial center of the world that we never were [prior to financial futures].”
Melamed points out estimates that the Futures industry accounts for 150,000 jobs in the Chicago area. “That does not include divorce lawyers and bartenders,” he quipped.
While Melamed’s anecdotes are inspiring, they also ring a warning bell. As he points out how most of the experts at the time thought his ideas were a joke. You couldn’t create futures in finance and certainly not in Chicago. Later in the Marketswiki event, which will go on several weeks, we will hear from Richard Sandor, who is credited with creating the first interest rate futures while an economist with the Chicago Board of Trade in the mid-1970s and recently received the French Legion of Honor award for his work in environmental finance. He has similar anecdotes to Melamed in regards to being laughed at and rejected by the powers in finance of the day for the idea of creating futures on financial instruments.
Today, the United States, with all our issues, is still the one global superpower and largest economy in the world. Chicago is the center of the world of Futures and risk management.
The core of Melamed’s message is that those things didn’t happen by accident and they won’t be maintained by providence. They only will be maintained through competition. Going toe to toe with the other guy and competing with hard work, imagination and innovation.
In wrapping up Melamed stressed perseverance. “If you have an idea you know is right, don’t let go. Persevere, but persevere with testing, persevere with research, persevere with study.”