By Nicholas Dunbar
A compelling narrative on what went improper with our monetary system—and who’s to blame.
From an award-winning journalist who has been masking the for greater than a decade, The Devil’s Derivatives charts the untold tale of recent monetary innovation—how funding banks invented new monetary items, how traders the world over have been wooed into deciding to buy them, how regulators have been seduced by way of the political rewards of straightforward credits, and the way speculators made a killing from the near-meltdown of the monetary system.
Author Nicholas Dunbar demystifies the revolution that in brief gave finance an analogous highbrow respectability as theoretical physics. He explains how bankers world wide created a mystery trillion-dollar desktop that added reasonable mortgages to the hundreds and riches past desires to the monetary innovators.
Fundamental to this saga is how “the those that hated to lose” have been persuaded to just accept danger via “the those that enjoyed to win.” Why did humans come to belief and admire arcane monetary instruments? Who have been the bankers competing to gather the fundamental parts into more and more elaborate machines? How did this procedure in achieving its personal unstoppable momentum—ending in cave in, bailouts, and a public outcry opposed to the giants of finance?
Provocative and exciting, The Devil’s Derivatives sheds much-needed mild at the forces that fueled the main brutal fiscal downturn because the nice Depression.
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Additional info for The Devil's Derivatives: The Untold Story of the Slick Traders and Hapless Regulators Who Almost Blew Up Wall Street . . . and Are Ready to Do It Again
Sample text
Very often, bankers would welcome more loans and deposits at the quoted rate but will not change the rate, because of adverse effects on marginal revenue or cost. Such a behavior is typically observed in imperfectly competitive markets. Barriers to entry (such as economies of scale, advertising expenses, regulatory controls on entry and minimum equity requirement) and the institutional rate setting context in some countries create obvious imperfections in financial markets. Also, the existence of fixed costs associated with a customer's decision to move from one bank to another (information, administrative and 'customer relationship' costs) makes the loan demand and deposit supply curves less than perfectly elastic.
I, the equity level is ,indeterminate and for equity level will be such that F(a*) avoid completely the bankruptcy risk. = O. a> I, the In this case, the managers The concavity of the utility function is clearly determinant. Deposit insurance or government intervention to protect deposit holders provide incentives to reduce the equity level toward zero when 35 < a 1 and therefore increase the risk of bankruptcy. This effect is of course reinforced when the well-known Modigliani-Miller [1958J tax saving effect of debt is included in the model.
1) will make this clear. The model dealing with stocks of financial assets and liabili- ties, one needs to know the value of these stocks at the end of the period to compute the economic profit. An accounting concept has been used instead of an economic one; not only the difference of interest payments but also the capital gains or losses on the asset stock must 49 be included. The capital gain (loss) being function of the asset market value and thus of the future long-term interest rate, we need to know the time dimension of the problem and in particular the deposit maturity.