Customer Reviews

Traders, Guns & Money: Knowns and unknowns in the dazzling world of derivatives

5 star:		(31)
4 star:		(12)
3 star:		(5)
2 star:		(2)
1 star:		(2)

 

 

This is not another journalist musing on the financial world. This is not an academic explanation of how financial instruments work. It's something else entirely -- a rare inside glimpse into the world of derivatives by a literate professional who's been a handshake away (or closer) from the major events in the market. Das leavens a series of technical discussions about particular strategies with more entertaining glimpses into the culture the drives the deals. Although I have bones to pick with the book's episodic structure, I can't think of a better way to get a crash course in how the capital markets really work.

"Knowns and unknowns in the dazzling world of derivatives" great subtitle and the author really delivers. I love books on finance. Possibly stemming from being dropped on my head as a child. Some are pretty brutal to read but this one is as entertaining as it is educational.

I was familiar with some derivatives like futures contracts and options, before reading this book. Now derivatives like CDO (Collateralized Debt Obligations), CCO (Commodity Collateralized Obligations), currency swaps, interest rate swaps, or even inverse floaters make sense to me. Obviously I am far from being an expert on any of these, but after reading this book I can now understand why Warren Buffet called derivatives "Financial Weapons of Mass Destruction".

The author does a great job educating you in story-like fashion. The book told of numerous investors that ended up getting screwed by some pretty good salespeople at different dealer firms. Buyer beware comes to mind time and time again as I read these episodes. The treasurer of Orange County California got in way over his head because he was making a ton of money. Which he attributed to his financial wisdom. Then when interest rates went against him and his county lost 1.5 billion dollars he changed his tune saying he had some kind of brain defect and could not understand numbers. That would have been handy for the voters of Orange County to know BEFORE they elected him to office.

I guess there are many reasons to use derivatives like avoiding taxes, moving risk from highly regulated areas to less regulated areas, using loans as collateral for even bigger loans, or repackaging bad credit in a way that transfers the risk to someone else. The more I learn, the more I am amazed that supposedly very intelligent people see these as a great way to make money. It just goes to show that most people invest in things they do not understand.

I read an article by the author, Satyajit Das today. In the article he mentioned that "1 dollar supports 20-30 dollars worth of loans" and that the derivatives market at the moment is valued at 485 trillion dollars, or to make that a little more understandable, 8 times the global gross domestic product. 8 times the GDP of the entire planet. Wow.

This book is a great introduction to the world of derivatives and I highly recommend it.

As a derivatives trader I've seen many of my colleagues who just enter the field paying hundreds of dollars for thousands of pages of Mr. Das highly unreadable and stupefying compendiums on the subject of structured products. It is impossible to imagine a more serious and devote approach to derivatives than that exuding from his technical volumes. In comparison this new book feels like a gush of fresh air and while demystifying and ridiculing what used to be his bread and butter Mr. Das may look a bit cynical it is an honest book full of interesting and plausible examples and stories. For novices it can be very educational and for experts quite entertaining. It is like a memoir of a spy who turned out to be a double agent on his lifetime in secret services. When a guy knows so much who cares what side he was serving on?

This book is really two, rather disimmilar, halves. I suspect that the kind of audience that would enjoy each half would be different too.

First, it is worth noting that Das is very knowledgeable about derivatives, not only in a marketing, but also a technical sense. He has written a series of (very lengthy and very good) books over the years on most aspects of derivatives/structured products.

Knowing his background and given my own significant experience with derivatives, I found the first half of the book (before the chapters on risk management and models)boring and not much more than a collection of trading floor anecdotes that tried to make the author sound more "hip" than I suspect he is. There was very little of substance, other than a bit of flavor.

If you can stay the course, the book gets progressively much better in the middle as it adresses risk management, models and structured products (first FX and interest rate, then equity and, finally, credit). It would be difficult to appreciate the full significance of some of the things Das was telling you about the shortcomings of these products, their risks and the ways they are sold without a decent prior knowledge. I felt there were still rather too many slick anecdotes and phrases, but that there was real substance too. I found myself saying, at several points: "oh, that's a very inciteful point," (e.g. for a convertible bond, from the investors' perspective, if they don't convert the bond into stock because the issuer's equity price is too low, that's probably precisely the time that, when they are left with a bond, the issuer's credit quality for the bond payments has suffered along with the stock price).

If I had rated the two halves of the book separately, I would have given the first half two stars and the second half four stars. I was left with the belief that it could have been so much better if it didn't have the feeling of being hastily put together as a kind of stream of consciousness, dictated quickly, from many years of valuable experience. Some sharp editing would have helped the author a lot.

I really enjoyed reading the book Traders, Guns, and Money: Knowns and Unknowns in the Dazzling World of Derivatives by Satyajit Das. It is an interesting book in that it is a fictionalized autobiography of Das. As the book outlines the author's professional life in finance, it describes how he got involved in financial derivatives. The primary purpose of the book is to give a primer on derivatives, how they were created, how they are used, their benefits, and their dangers. The author's use of humor along with the hilarious vignettes of his finance associates (Nero, Clem/Crem, Adewiko, Budi, etc.) and funny anecdotes from his career made the book fun to read.
The book really helped explain what exactly derivatives are (giving me a good review of some of what I was taught in college) and how they are used today. I also appreciated the in-depth analysis of several well-known instances where derivatives were used by investors and companies which really helped to demonstrate their application in the real world as well as the oftentimes hidden dangers of using these financial tools. I found his discussion of the currency swap done by the Walt Disney Company in the 1980's to be of particular interest to me. Despite the fact that I previously read the HBS case study during a Derivatives and Risk Management course which I took as a student at Harvard, Das's explanation of the incident really gave me an even better understanding of how exactly the transaction was structured and how it eventually went wrong. His explanation of why Disney's financial advisors made the deal so complex was also amusing. (You will have to read the book to find out.)
Moreover, Satyajit Das really underscored the complex nature of derivatives and their use in either speculative bets or in hedges. Previously, I had considered these financial tools as an efficient and safe way to hedge. However, the author points out that there are significant risks even when they are only utilized as a hedge.
Hence, I really enjoyed this entertaining and informative book. The author explains complex concepts in a clear, readily understandable, and comical way. I would recommend this book to anyone who wishes to learn more about financial derivatives or the world of finance in general and who does not mind being entertained at the same time.
Thank you for your time.

Satyajit Das has performed a great service to all of us who have heard talk of derivatives and wondered what all the fuss was about. It is both an entertaining and informative read and an indictment of the investment banks that crank these financial products out. He shows first how Wall Street fools its clients by creating incomprehensible products chock full of profits to them as seller but markets them as the financial cure for cancer, without including the long and unwelcome list of potentially deadly side effects in their sales pitch. Second, he shows how Wall Street has fooled itself into believing they understand and have properly hedged their own exposure. The system will inevitably blow up, but the traders will already have moved on with their gigantic bonuses made using other people's money and someone else will be left to hold the bag and clean up the mess.

If you work in Derivatives, you should read this book. It is quite entertaining. You don't have to agree in public with everything the author puts forth, but there is insight to be gleaned especially for junior people. It is important to hear both sides of a debate, however disenchanted one party becomes. This book is a lively one-way exit interview for a derivatives professional who sugarcoats nothing.

This is a fascinating book and a good read. Mr. Das does a great job of explaining in simple terms how some fairly complex financial instruments work and he does it with style. He is also an entertaining cynic, and he takes the reader through the underside of the banking industry in a very readable way.

In some ways this is absolute comedy, and for a while I was caught up in the amusement of seeing a "Flashman" weaving his way through the world of high finance, but ultimately the tales of mendacity and sheer greed, unaccompanied by any focus on value to customers, tend to wear me down. Many of us knew the risks of these products, but credulous buyers bought the pitch whole.

For a quality book, and this is one, there are a few miscues. Any book that mentions Warren Buffett as often as this one does (nine times in the index) should at least spell his name correctly.

Also, Das does correctly note that the origin of currency swaps and interest rate swaps in the mid 1970's - the basis of modern derivatives --arose out of the parallel loan market (at 34-37), but he gets the first parties and transactions wrong. Starting in early 1976, a series of such agreements was done by Monsanto Company, the first of which was with Imperial Chemical Industries Limited, quickly followed by others with Rank Xerox, Hanson Trust and others. Interestingly, these were invented by a small group of lawyers in a London conference room to solve a legal problem and in fact to reduce risk - with no involvement by investment bankers. Of course, Goldman Sachs, who represented Monsanto (and maybe ICI too), saw a product that it could sell to others, and the market was off and running, leading to all kinds of variations and new risks. How do I know this? I still have a copy of the original swap. See my article on the origin of derivatives at http://www.gaiben.com.

While I was reading the book I had put my company's money requirement for bidding. Two banks were selected - the bank which was charging me higher interest offered to get the interest down by offering me a 'safe' derivative which would get my effective interest rate down. The safe clause was that my liability would kick-in only if the Japanese Yen fell less than 95 to a US$ (at the time of discussion it was 108 Yen to a US$ - subsequently it did go below 95 Yen). And my company's potential liability was about 200 times the interest it was saving us! After reading this book I knew what questions to ask the banker - he was red-faced and I saved a lot of money for my company. If you don't remember (in this case-read) the past, you are doomed to repeat it.

I hope you found the review helpful.

Laugh out loud funny. Well-known characters on nearly every page, often thinly disguised. Transparent retellings of trade horror stories pad out the material (P&G, Orange County, Metalgeselenshaft AG) which the author had nothing to do with, but his front line tales of bogosity, cretinousness and horrifying stupidity passing as brilliance, only to end in tears is the kind of shadenfreunde this reader cannot deny enjoying. A must read.