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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.
What I found interesting in this derivatives book was the author’s focus not on the technicalities of the products sold, but on the story’s dramatic stance. Dunbar plays the puppeteer and his characters are the banks’ main decision makers, those people who knew everything and nothing in the same time. At the end of the day, the game was about big money involved and about the struggle to move them from one pocket to another – with little concern for the other stakeholders. This is essentially the same as in most of the other crisis books, yet in “The Devil’s Derivatives” the people involved are so vivid. “The Devil’s Derivatives” also contains a list of the main events who led to the crisis – which is something new for me – and worth revisiting from time to time. The people involved are also described in full details, without hate or love – just the way they were behaving and driving up to the top of the glory hill and then down, with no breaks. A real story about real people, which rings me familiar signs from the corporate ladder politics.

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