Monsters and sharpy financial world

Today, any objective analysis of the financial market of the USA leads to the conclusion that the derivatives, or derivatives - the main component of this market. Rapid 1990, changed the political map of the world, were also significant fundamental structural change in the nature of financial transactions. The explosive nature of derivative financial instruments literally shook the entire global financial system. Price breaks and unpredictable changes in volatility may occur at any time, creating an insoluble problem for portfolio investors.

Dream of reason creates monsters.

F. Goya

Cold deck for playing «in the dark»

Derivatives are a very complex financial instruments whose value is «derivative» of any the underlying asset base. Under the asset can be understood by the market value of the shares, as well as interest rates, stock indexes, currencies, etc. By derivatives include options, futures, forwards, swaps and various combinations of these instruments.

It is important to learn that the base assets are not able to objectively describe the scope or the derivatives market turnover. Assets to be merely a basis for the creation of derivatives. The value of derivative can be represented as a balance sheet reflecting the exposure to yield a point in time, but not as a financial report on the operations or on the side.

Some analysts are losing sense of reality and make a great, unforgivable for financial market professionals the error by publishing the work in which the hypothetical size of the derivatives are considered as a real transaction, rather than positional values. In fact, calculating the potential derivatives are positional - it is like to photograph the position of the balance at some point in time. Although now in financial circles, and adopted the view that the financial assets involved in derivatives, has no connection with the positional risk derivatives - this should never accept. The higher value of the sums, the more leverage is used to build pyramids in the open position in the derivatives. As more power is used, the higher the cumulative risk of a portfolio of derivatives.

Authorized brokers and aggressive private speculators of Wall Street immediately realize that the derivatives - this is a wonderful financial innovation that could lead to the estimated risk management and the huge flow of new profits for American financial brokers. However, beyond the margins of financial derivatives has become the reputation of high-risk financial instruments, which can, as a flock of hungry sharks, gobbling it up including the founding of their financial «genius». With an increasing number of derivatives has become a stronger belief that the various companies working on the matter of the market, are included in the reckless gambling game. A number of major financial disasters strengthened public opposition to the offspring. Some critics called derivatives «cold deck financial world». It is relevant to the analogy with the English folk tale «The student magician», on the grounds of Walt Disney made in 1940, his classic masterpiece «Fantasia». Recall the plot unknowing reader.

The student magician, yet little in the higher magic, but very perky scapegrace, entered the room the teacher when he was somewhere went about his business. On the table lay a magic book, which were written by various spells. Most of these hapless young magician did not know, but one does could read. As a result, the cabinet appeared furious demon, which the pupil could not tame. And nesdobrovat a guy, if a teacher is not remembered in time that has forgotten to lock the cabinet, and never came back. End of a good fairy tale.

Creation of derivatives can be taken as a dangerous attempt to release the enormous financial power - is too powerful and unpredictable that they can be easily tame. Unfortunately, the wait for assistance experienced mage term market investors do not have to, so that the end of the story can be very bad.

Luckless magician apprentices

In December 1993, the huge German industrial conglomerate Metallgesellschaft AG suffered losses on investments in derivatives, which made it a subsidiary office in the United States. Total losses initially estimated at over $ 1 billion - enough to put the Metallgesellschaft, 14 th largest industrial enterprise in Germany, to the brink of bankruptcy.

Management was able to scrape by Metallgesellschaft susekam recent $ 1.9 billion in order to escape bankruptcy. But the first known crash on derivatives is yet only the flowers.

After troubles with Metallgesellschaft disaster with companies attempting to reign in derivatives, sprinkled as a horn of plenty. Cargill lost $ 100 million, playing with mortgage derivatives, Procter & Gamble, one of the American blue chips, lost $ 157 million on hedging of foreign exchange derivatives, and the loss of Codelco Chile totaled $ 200 million in futures on copper and precious metals. You can add Daiwa Bank of Japan, Sumitomo Corporation, Ashanti Goldfields. In 1994, Robert Sitron (Robert Citron), head of the treasury of one of the most affluent areas of the U.S., Orange County, California, went bankrupt richest county. Mr Sitron, driven by noble impulses to make his county richer put state money into various risky exotic derivatives, including reverse repurchase transactions, in order to obtain high revenues for the county investment pool, which he controlled. Unfortunately, when the market moved against its huge debt positions, funds that were under his care, instantly lost $ 1.5 billion during the Senate hearings in the State of California in 1995 by Robert Sitron said: «I am compelled to obedience to admit that I in fact, not as an experienced treasurer, what a thought ».

In February 1995, the collapse of a proud and glorious English Barings Investment Bank, has just celebrated its 223 anniversary. The bank, which was among the customers, even Queen Elizabeth herself, the bank whose money raised great British Empire in the XIX century, was destroyed as a result of unauthorized transactions in derivative securities for which the price has gone in the wrong direction, which had been anticipated. Dear conservative pillar of the British financial system, died as a result of the powerful and essentially uncontrollable forces, to break through the room the young «apprentice magician», located at the other end of the world, in Singapore. Lison Nicholas (Nicholas Leeson), 27-year-old trader, working on short-term speculation, wangle immediately lose $ 1.3 billion, before administering the head office in London were able to understand what happened.