The first is that, during market crises, markets become correlated in unexpected and seemingly irrational ways. We've seen this happen often and dramatically enough last Fall that it's become common knowledge by now. But Bookstaber reminds us of a striking historical example of just that phenomenon: the silver collapse of 1980.
"The decline in the silver market brought the cattle market down with it. The improbable linkage between silver and cattle occurred because the Hunt brothers needed to raise capital to post margin as their silver positions declined. They happened to have sizeable positions in cattle, so they aggressively sold out of them. The end result was that silver and cattle, which have nothing to do with each other, dropped in unison. [...] what matters is who owns what, and who is under pressure to liquidate."
The second point he makes is that, while "in most fields, the evolution of engineering reduces risk, [...] this doesn't seem to be the case for engineering in the financial markets."
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