I am convinced that accounting for derivatives ranges somewhere between astrology and alchemy. We worry about pension funds getting in over their heads with hedge funds. There could be regulation.
Barney Frank, Incoming Chief of the House Financial Services Committee
In Chapter 12 of the Intermed book we examine how to account for investments. Generally that has meant stocks and bonds for which there are usually reliable quotes. What about a derivative? to get an idea of how much activity is going on here log on to the Chicago Mercantile or derivatives.com.
If I were going to write a fiction financial thriller, I believe my topic would be how terrorists working thru legit govts contrived to force a derivative trade that could not be met, in the process driving down the value of the dollar with simultaneous announcements that OPEC has switched to the EURO and also taken on huge option positions (puts) against the US Dollar financed thru derivatives that would further drive the value down if exercised.
Now mind you the Chicago Merc which just merged with the Chicago Board of Trade deals in listed derivatives. What worries Frank, and rightly so, are all the trillions of dollars of 'off exchange' derivatives. Remember Long Term Capital Management? Greenspan felt he had to rescue that firm or face untold calamity in the markets. IN his latest interview with Maria Bartiromo in B/W, the newTsy Secy Richard Paulson stated that hedging risks with derivatives was probably why we had avoided a financial calamity for the last several years. Maybe...
Interstingly Chairman Frank agreed with me that having a Tsy Secy from Wall Street was a better idea. I never understood why Bush appointed the CEO of Alcoa and then the CEO of a railroad to such a post-jeez. Another example that you don't learn near as much in Harvard MBA as most folks think.
DLE
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