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The Devil's Derivatives: The Untold Story of the Slick Traders and Hapless Regulators Who Almost Blew Up Wall Street . . . an Hardcover – July 12, 2011
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From an award-winning journalist who has been covering the industry for more than a decade, The Devil’s Derivatives charts the untold story of modern financial innovationhow investment banks invented new financial products, how investors across the world were wooed into buying them, how regulators were seduced by the political rewards of easy credit, and how speculators made a killing from the near-meltdown of the financial system.
Author Nicholas Dunbar demystifies the revolution that briefly gave finance the same intellectual respectability as theoretical physics. He explains how bankers worldwide created a secret trillion-dollar machine that delivered cheap mortgages to the masses and riches beyond dreams to the financial innovators.
Fundamental to this saga is how the people who hated to lose” were persuaded to accept risk by the people who loved to win.” Why did people come to trust and respect arcane financial tools? Who were the bankers competing to assemble the basic components into increasingly intricate machines? How did this process achieve its own unstoppable momentumending in collapse, bailouts, and a public outcry against the giants of finance?
Provocative and intriguing, The Devil’s Derivatives sheds much-needed light on the forces that fueled the most brutal economic downturn since the Great Depression.
- Print length320 pages
- LanguageEnglish
- PublisherHarvard Business Review Press
- Publication dateJuly 12, 2011
- Dimensions6.47 x 1.03 x 9.45 inches
- ISBN-101422177815
- ISBN-13978-1422177815
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Review
The Devil’s Derivatives” presents an intriguing and original analysis of the problems that Wall Street has been spreading to the world.” Midwest Book Review
well written and will grab the interest of financial professionals before the first time they have to turn a page.” Dunbar's great at taking the long view of things, and you won't find a better explanation, anywhere, of why banks shouldn't mark their assets to market.” - Reuters
Even Warren Buffett could not have stated the case more simply.” Absolute Return magazine
a well-researched account of the forces and events that led to the implosion of the financial system three years ago.” The Irish Times
Nicholas Dunbar follows the first rule of good journalism: talk to everybody. He has interviewed not only the leading players in the derivatives industry, but has also followed many key actors whose stories have never appeared in printuntil now. As this book makes clear, the dark side of financial innovation is just getting darker, and it is only a matter of time before we suffer another derivatives fiasco.” Frank Partnoy, George E. Barrett Professor of Law and Finance, University of San Diego School of Law
Nicholas Dunbar offers an insider’s perspective into the complex and risky world of derivatives. The Devil’s Derivatives is a compelling book, one that takes clear aim at the risk-takers on Wall Street who contributed to both our economy’s growth and decline. Dunbar is a fine writer who combines a deep knowledge of finance with a great knack for storytelling.” Edward Chancellor, author, Crunch Time for Credit and Devil Take the Hindmost: A History of Financial Speculation
The Devil’s Derivatives is a bold book written by a hardnosed journalist with a stiff backbone. With guts and nerve, Nick Dunbar investigates the gamblers and speculators who contributed to the latest financial crisis. At last, a book on the subject that shows true grit.” Jules Kroll, founder of Kroll Inc., and Chairman and cofounder of K2 Global Consulting
About the Author
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Product details
- Publisher : Harvard Business Review Press; First Edition first Printing (July 12, 2011)
- Language : English
- Hardcover : 320 pages
- ISBN-10 : 1422177815
- ISBN-13 : 978-1422177815
- Item Weight : 1.22 pounds
- Dimensions : 6.47 x 1.03 x 9.45 inches
- Best Sellers Rank: #1,695,075 in Books (See Top 100 in Books)
- #1,252 in Banks & Banking (Books)
- #2,528 in Company Business Profiles (Books)
- #3,366 in Economic History (Books)
- Customer Reviews:
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About the author

Nicholas Dunbar grew up in London and trained as a physicist at Manchester, Cambridge and Harvard universities. He was inspired to become a financial journalist by university friends who took their mathematical skills from academia onto the trading floors of investment banks.
From 1998 until 2009, Dunbar was technical editor of Risk magazine, a specialist derivatives publication. In 2005, he launched Life & Pensions, a sister publication to Risk aimed at the insurance and pensions industry.
During this time, Dunbar wrote a series of exclusive stories on derivatives blow-ups which cemented his reputation as an investigative journalist, and in 2007 he won the State Street award for institutional financial journalism. He has also written a column called ‘Risky Finance’ for the financial commentary service Reuters Breakingviews and currently works for Bloomberg.
In 1999, Dunbar wrote his first book, Inventing Money: the story of Long-Term Capital Management and the legends behind it (Wiley, 2000). The Devil’s Derivatives is his second book. For further information visit www.nickdunbar.net
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The envoi of the book: "What started out as an arcane twist of high finance--derivatives--has now corrupted the entire financial world, and has set a hellish trap for taxpayers and their representatives that offers no way out'. The Mepisto analogy works only so far, and is unfair to the victims who are not devil worshippers: the passage to hell is for the common citizen who trusted market capitalism, while the perps have survived handily. Such a game, with a grotesque Social Darwinist leitmotif must wind down, sooner or later, lawfully or else: the disillusion with markets will soon be beyond repair. Next.
Thank-you Mr Dunbar for giving us this insight. Now what do we do with it ?
René-Louis Perrier
This fine treatise illuminates these realities...
Top reviews from other countries
尤も後半はシロートでも面白い。資産に対する「保険数理的アプローチ」と「市場型アプローチ」のせめぎ合いの末に、ついに「市場型アプローチ」の権化たるゴールドマンサックスが口火を切って世界最大の保険会社を崩壊させる過程の解説は秀逸。ディリヴァティブ業者にだけ有利な担保回収を許す法律改正が2005年にコッソリ通っていたとか、こういう話をきちんとしてくれる著者さんは今までいなかった。信じ続けた「市場の力」と、奨励し続けたOTCディリヴァティブの網の目の中で、規制当局が金縛り状態に陥る姿とともに、取りあえず金融危機の第一章は終わる。で、現在の「金融大量破壊兵器」はひたすらに刷り続けられるペーパーマネーか。
巻末に金融史年表があるが、「リスク保存の法則」という天の法に戦いを挑んで敗北する人類三十年史は、1973年のブラックショールズモデル誕生から意味深に開始される。八十年代初頭の南米債務危機が抜けているのはミスだろう。1986年にはS&L危機。年表をツラツラと眺めていて、これまで金融危機の度に投入されてきた公的資金を鑑みると、バンキングというのは長期でならすと全く儲けられない業界じゃないかという気がしてくる。
ここで明らかにされるのは規制と業者のいたちごっこです。そしていつも騙されるのは流動性を持った田舎者です。邦銀が国際市場から撤退した中でカモにされるのはドイツやイタリアの金融機関です。フリーランチがない市場でフリーランチを求めたこれらの金融機関がカモにされていくありさまが、デリヴァティヴというMTMの迷路と共に描写されていきます。
信用リスクのデリヴァティヴ化は信用リスクが市場価格で毎日変化していく世界です。そして金融機関は小さな資本でリスクを取っていくためこの信用リスクの市場における急速な変化のなすがままになってしまいます。AIGの救済自体がAIGのカウンターパーティの救済を目的としていたという隠された側面を明らかにしていくさまは見事です。
著者は業界の自主努力による改革には期待していません。著者が指摘するのは巨大な業界のロビーイング能力です。おそらく取材や出版までのプロセスで業界からの相当の嫌がらせや圧力があったことは想像に難くありません。
It is accepted that some industries have real and genuine reasons to protect their exposures to price, interest, and currency fluctuations but by far and away the vast majority of the multi-trillion $/£ annual derivative trading turnover involving many millions of transactions and tens of thousands of people, are done solely as a punt with the sole intent of making a fast buck.
`The Devil's Derivatives', covers in the most easily comprehensible manner many of the types of these highly speculative wagers that are or have been frequently used particularly by Banks and other major financial institutions in pursuit of profits, and certainly most readers will at least gain an brief insight into derivative trading. A scant degree of understanding is enough for the average Joe because basically each type of derivative genre is contrived exclusively for the purpose of enticing two parties to enter into a gamble with each other one of whom will win and the other lose, and for no other useful purpose whatsoever. And here is the shocker - the derivative trader unlike most professional gamblers, does not use his own money, he dips into the shareholders stake in his company to fully fund his `casino' activities putting not a $ of his own money into his flutters. Any profits made are for the benefit of the shareholders less, of course, a sizeable bonus for himself, managers and senior executives, but if he loses the entire loss is borne by the shareholders without any contribution whatsoever from those that dipped their sticky fingers into the winning pot before it got passed on to shareholders.
So there you have it - gambling completely devoid of sound commercial rationale and `insurable' interest, using someone else's money, keeping a chunk of any winnings but not making any contribution to losses - I'm sure we'd all like some of that.....if one's conscience was sufficiently malleable to come to terms with the gaping inequality.
This book both enlightens the reader on the goings on in the offices of our financial institutions but shocks to the core with the revelations of the absence of meaningful and effective statutory regulation and knowledgeable internal risk management controls to rein in the reckless activity that continues to endanger our monetary system.
President Barack Obama has publicly declared that the USA didn't become the most prosperous country in the world just by rewarding greed and recklessness. It wasn't done by gambling and chasing paper profits on Wall Street. This book shows that maybe in the past this was not the case but that nowadays it is sure fast-footing it down the road to the casino with it's pockets stuffed with other people's money, which is indeed worrying for those whose money is being pocketed, and for those many millions of tax payers who will have to pick up the bill when it all goes belly-up.
This is a very readable, interesting, informative, thought provoking yet slightly troublesome book.
Take chapter two on value at risk. A key concept in the whole chapter, and rest of the book, is the concept of a mattress. The author got this explained by a trader and makes a poor job explaining to the reader what is meant. The author also claims that a mattress increase trading profit for traders with a mattress based on some sketchy psychology. I am not a fan of a text clugged woth reference notes but this is a time when a reference is highly desired, because the explanation is just not believable.



