Nothing seems to work anymore as it used to do in the past. There was a time, not long ago, when a credit default swap was always issued by a smart bank and had always a counterparty which was not so smart to underwrite it. Usually the counterparty was AIG, or some other big insurer who thought it could manage any imaginable risk. But the International Swaps and Derivatives Association just changed this rule today, by deciding that the CDS was not triggered yet, despite the huge decline of 90% in the last months. The debt of Greece now stands at “only” $3.2 billion and is basically covered by no insurance or other type of derivative. This makes the sellers and the consulting banks to look very smart, since they do not have to pay anything… yet.
Actually the various rounds of debt reductions have made only a couple of winners so far – namely the Greek government and the Goldman Sachs and other intermediaries who have already cashed in their advisory fees long time ago. Imagine this – wouldn’t you like to run a big corporation, borrow $32 billion, do whatever you want with it and then get away with only 10% of it because you “are too big to fail”?
Hmmm, I would like to be a government like this one. And take the population on the streets if somebody tries to corner me and ask for the WHOLE amount of money back…
Tag Archive for Goldman Sachs
Well, this was a treat for me. The book was launched on July 12th in the US, and by a day later it landed on my desk, courtesy of the publishers (Harvard Business Review Press), who by a skillful marketing found out that I like such (financial management) books … and sent me this copy without any request from my side. Nice surprise.
I have read many books about the financial innovation and the crisis (at least 5 in the last year) – this should qualify me not as an expert, but at least as a knowledgeable person.
“The Devil’s Derivatives” is a book about both, so if you expect some stories about the history of the derivatives or a crash course on how to make money late in the night in front of your computer screen – call an expert. “The Devil’s Derivatives” rather illustrates the point of view of an outside historian – thus representing a relatively objective view on how the derivatives world exploded and then imploded in the last years.
“The Devil’s Derivatives” tells the most interesting financial story of our times – how the banks invented new financial products to make more money, how were the worldwide investors lured to buy them and how regulators were seduced by the siren song and adopted lax rules for the derivatives. It is a story of greed and deception, a story of smoke and mirrors in the heart of the world’s financial system.
Nicholas Dunbar is well placed to tell such a story. First of all, he is a well known financial journalist in the UK, and thus he followed the story step by step as it developed. Secondly, by his own account he lived in both London and New York and saw live the banking mentality. From the money splashing of the bonus system to the secrecy of the boardrooms, nothing is missed by “The Devil’s Derivatives”.
At last (but not at least), Dunbar is a physicist by education – thus the assertions that the derivatives are more complex that the quantum physics has finally found a worthy tester. He is actually drawing a very neat comparison between the two fields of science – with interesting results. Read more