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“The Devil’s Derivatives” by Nicholas Dunbar – a Financial Book Review

the-devils-derivatives-by-dunbar-courtesy-review-wwwdoitinvestcom 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 »“The Devil’s Derivatives” by Nicholas Dunbar – a Financial Book Review

2010 Nobel Prize in Economics vs Ig-Nobel Prize…On Economics Too, of Course

Everybody’s obsessed with finance and the flow of money these days. No wonder that we at go for the same theme and now wonder that the Nobel committees are looking at the same stuff.
This year the Nobel prize for economics was shared by three gentlemen. The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2010 was awarded jointly to Peter A. Diamond, Dale T. Mortensen and Christopher A. Pissarides “for their analysis of markets with search frictions”. The guys looked actually at the imperfections of the markets – why are they not frictionless but full of hidden costs?Read More »2010 Nobel Prize in Economics vs Ig-Nobel Prize…On Economics Too, of Course

AIG Pays, Then It Is Taxed, Then They Give the Money Back

aig-towerSometimes I can’t stop wondering. First of all, AIG decided to pay bonuses to its executives for about $160 million. Of course, the cash came from the roughly $90 billion government help to the worldwide linked insurer to survive until toady, in a move which was very much debated. Since AIG showed that its fall would trigger a domino collapse of the global financial system, it looks now like the government had little choice about it. And so it did.

Now the show turns sour for the bonuses recipients. Forced by the public opinion outrage (justified or not) and by the 90% taxation bill enforced by the Senate, most of the AIG executives decided to return those money to the company. In its famous book, “The Truth About Markets”, John Kay mentions in one chapter this irrationality of the capital markets – we do not blame a company that it fails under the assumption that all company fail (market crash), but its executives are rarely forgiven by the public. Yet, those people are not invincible. And the executives of AIG might argue that they worked hard for those money, which are not out of the usual payments.Read More »AIG Pays, Then It Is Taxed, Then They Give the Money Back