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Good Derivatives: A Story of Financial and Environmental Innovation Hardcover – April 3, 2012

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Editorial Reviews

From the Inside Flap

Through the eyes of an inventor of new markets, Good Derivatives: A Story of Financial and Environmental Innovation tells the story of how financial innovation—a concept that is misunderstood and under attack—has been a positive force in the last four decades. If properly designed and regulated, "good derivatives" can open vast possibilities to address a variety of global problems. Filled with provocative ideas, fascinating stories, and valuable lessons, this timely book will provide both an insightful interpretation of the last forty years in capital and environmental markets and a vision of world finance for the next forty years.

As a young economist at the Chicago Board of Trade, Richard Sandor helped create interest rate futures, a development that revolutionized worldwide finance. Later, he pioneered the use of emissions trading to reduce acid rain, one of the most successful environmental programs ever. Throughout these pages, he will provide unique insights into the process of creating these new financial products. Covering successes and failures, the story describes the tireless process of inventing, educating, and creating support for these new inventions in places like Chicago, New York, London, and Paris and how it is unfolding today in Mumbai, Shanghai, and Beijing.

Along the way, this book tells the story of the creation of the Chicago Climate Exchange and its affiliated exchanges—the European Climate Exchange, the Chicago Climate Futures Exchange, and the Tianjin Climate Exchange, located in China. The lessons learned in these markets can play a critical role in effectively addressing global climate change and other pressing environmental issues. The author argues that market-based trading systems are a far more effective means of reducing pollutants than "command-and-control." Environmental markets may ultimately help to find solutions to issues such as rainforest destruction, water problems, and biodiversity threats.

Written in an engaging, narrative style, Good Derivatives will be of interest to both practitioners and general readers who want to better understand the creative process of financial innovation. In the middle of so much distrust of markets, it is also a recipe of how transparent, well-regulated markets can be a force for good in environmental, health, and social areas.

From the Back Cover

Praise for Good Derivatives

"Richard Sandor is a true genius. That is obvious. For creating the world's most popular class of futures contracts? For persevering with climate projects despite headwinds of incredible force and dysfunction? Or for marrying Ellen? All of the above but more so, in my view, for marshaling teams superbly. I enjoyed the pride of membership on one of them. If he ever seeks your help, say 'yes' and do it fast!"
PHILIP McBRIDE JOHNSON, Past Chairman, Commodities Futures Trading Commission

"No one has more insight into the power of markets to achieve environmental objectives than Richard Sandor. In Good Derivatives, he combines his depth of experience in the marketplace with his passion for telling stories. At the heart of this work is his belief that innovation—financial innovation in particular—has helped make the American economy supreme. He not only sheds light on the evolution of financial innovation through the different products and methods that became available, but also through the role he played using markets to shape policy goals that he cares about. Sandor examines how the marketplace and trading can create value for society, and ultimately drive environmental ends in a positive direction. This is a strategy that defines his lifetime of work."
U.S. SENATOR JEFF BINGAMAN (D-NM), Chairman of the U.S. Senate Committee on Energy and Natural Resources

"This book represents the work of one of the world's most brilliant, inquisitive, and visionary minds. Richard Sandor knows this subject as an economist, a trader, an executive, an entrepreneur, but most of all, as a teacher. No one else in the world could have written this book. There is lots of intrigue in financial markets, especially in Chicago. He lifts that veil, while also explaining what derivatives are all about."
AMBASSADOR CLAYTON YEUTTER, Past Secretary of the U.S. Department of Agriculture and U.S. Trade Ambassador


Product Details

  • Hardcover: 640 pages
  • Publisher: Wiley; 1 edition (April 3, 2012)
  • Language: English
  • ISBN-10: 0470949732
  • ISBN-13: 978-0470949733
  • Product Dimensions: 6.3 x 1.4 x 9.3 inches
  • Shipping Weight: 2.2 pounds (View shipping rates and policies)
  • Average Customer Review: 4.9 out of 5 stars  See all reviews (16 customer reviews)
  • Amazon Best Sellers Rank: #328,633 in Books (See Top 100 in Books)

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15 of 17 people found the following review helpful By J Emrich on April 18, 2012
Format: Hardcover
I recently completed the course work for a masters degree in environmental studies. In class after class, I was shocked at how few of my fellow students understood anything about the history and substance of "cap and trade." Too many environmental advocates think that cap-and-trade is just "a license to pollute." This book, by the "father of financial futures," provides the foundation for financial and non-financial professionals alike to understand how derivatives, understandably but unfairly sullied in the recent financial debacle, can be used to solve major societal problems such as environmental degradation and global warming. Too few environmental professionals are familiar with how cap-and-trade has already been used to significantly reduce acid rain (and even that wasn't the first successful application of the innovation). Like all great stories, this book succeeds on multiple levels; it is both entertaining and educational. I especially appreciate the down-to-earth, almost sparse, writing style: all the words that are needed, but only the words that are needed.
If environmental advocates doubt the importance of this subject matter to their vocation, just know that Ronald Coase of Coase Theorem fame (one of the first subjects of study in your Environmental Law and Policy class) wrote the introduction and plays an important role in the story.
Five stars.
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23 of 29 people found the following review helpful By Aaron C. Brown TOP 1000 REVIEWERVINE VOICE on March 31, 2012
Format: Hardcover
This is a difficult book to rate. The author had a front-row seat to the introduction of financial futures in the 1970s. He worked alongside the originators of those products and was responsible as much as anyone for navigating them through regulatory mazes. His many presentations helped shape popular ideas about derivatives. The invaluable first-hand accounts of that time make this an important book for students of modern financial history.

At first, the book seems like an exercise in egotism. The words, "I," "me" and "my" dominate the text. The chapters are "The Early Years" (not "My Early Years"), "The Berkeley Years" (not "My Berkeley Years") and so on, as if the author imagines himself forming a new religion. When the author teaches a course as an adjunct, he informs us, "A new field was born." When he was sent to the principal's office for misbehavior in fifth grade, he tells us he developed lesson plans and tests for the school, and a painful story of how he destroys a radio for the amusement of his ten-year-old friends is intended to demonstrate his skill at stand-up comedy.

I think that the author is attempting a sort of radical realism, to make us see events through his eyes rather than to understand them from an objective perspective. The book is deliberately self-centered rather than egotistical, more a diary than a history or an autobiography. The passages that appear over-the-top boastful reflect his self-image accurately, and all of us (or at least most of the happy ones of us) carry around comforting memories with little basis in fact. Unfortunately, I don't think the attempt succeeds.
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4 of 4 people found the following review helpful By Peter F Gallagher on December 5, 2014
Format: Hardcover Verified Purchase
Good Derivatives: A Story of Financial and Environmental Innovation
By Richard L Sandor

Richard Sandor’s account of the development of financial and environmental derivatives during the last forty years will likely provide many different meanings to many, many different people. I must disclose here that my own perspective is that of an original (1975) GNMA permit holder, then a Financial Instruments Member on the Chicago Board of Trade. Accordingly, I have been witness to the market magic of good derivatives for years. Regarding Good Derivatives: A Story of Financial and Environmental Innovation, superlatives abound: scholarly, vast, thorough. And poignant. Especially poignant is the author’s emphatic premise that markets can be used creatively in order to solve social problems. Regarding Richard’s career detailed within, observations such as ambitious and imaginative are not nearly sufficient. Consider bold and audacious. Consider visionary. Without Richard, I’m sure derivatives on US Government securities would eventually have been created, but the process would likely have taken much longer and the result not nearly so finely engineered. And beyond financial futures, I’m not sure that anyone else would have had the extraordinary combination of skills, vision and fortitude to have created the Chicago Climate Exchange. Within the many inspiring pages of Good Derivatives, the career of Richard Sandor celebrates the excitement of possibility, then begs a question of the reader: What can you do? Having done his part, author is good enough to offer a provocative suggestion: somebody really ought to do something about the world’s fresh water issues. Any takers out there?
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3 of 4 people found the following review helpful By KMP on July 12, 2012
Format: Hardcover
Good Derivatives provides an illuminating perspective on financial innovation that is both readable and highly informative. Integration of personal anecdotes makes for an entertaining narrative, and although the book includes plenty of conceptual explanations relating to financial markets, the writing is far removed from dry textbook language. Dr. Sandor's story is one of incredible willpower and achievement, from serving as vice president at the Chicago Board of Trade to establishing the first voluntary greenhouse gas cap-and-trade program. He meets a number of interesting and influential people along the way, including Nobel Prize-winning economist Ronald Coase, who wrote the foreword for the book. A great read for those seeking a better understanding of how financial products can be used to promote positive social and environmental outcomes.
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