DerivaQuote

Fallout from Derivatives Losses

Every time something bad happens, derivatives get blamed. You'd think subversives were using them to take over the world.

No recent non-political topic that I know of has inspired more hyperbole.

David Mullins
Risk, March, 1994, p. 30

Based on recent press reports, the current media definition sometimes seems to be, ‘a derivatives transaction is any financial transaction in which a large amount of money is lost.'"

Mary Shapiro, CFTC Chairman
Futures, March , 1995, p. 16

They've cut back on some plans to expand amusement parks.

Anonymous quote on fallout from Orange County Crisis
Futures, February, 1995, p. 8

Investors have already found fault with some companies for failing to ‘derivate' - a verb jokingly created by J. Peter Grace, Chairman of W. R. Grace & Company.

Terence P. Paré
"Learning to Live with Derivatives"
Fortune, July 25, 1988, p. 108

...despite the panic, the derivatives crisis is largely a news media invention.

Marc Levinson
"Trader Nick"
The New Republic, March 20, 1995

Top management, whether corporate or otherwise, failed to understand the nature of the products being used in their treasuries or trading operations.

"The Art, Not Science of Risk Management"
Controlling Risk
Risk magazine special supplement
June, 1995, p. 2

A couple of the people who were in the core places within Barings that should have been administering a high level of control ...had what I would describe as almost no understanding of the fundamentals of the business.

Nick Leeson
Interview with David Frost
British Broadcasting Corporation, September 11, 1995

Nick Leeson, whom most of you know and all of you have heard of, runs our operation in Singapore, which I want you all to emulate.

Ron Baker, Barings
December 9, 1994
quoted in Rogue Trader, Nick Leeson, 1996, p. 143

The recovery in profitability has been amazing following the reorganization, leaving Barings to conclude that it was actually not all that terribly difficult to make money in the securities business.

Peter Baring, chairman
Barings Bank, September 13, 1993
quoted in Rogue Trader, Nick Leeson
1996, p. 72

Management was second-rate at best ... They had no concept of the words risk and management going together, for instance. The place was becoming unraveled.

Unidentified former senior director of Barings
quoted in Total Risk, Judith Rawnsley
1996, p. 94

Apologies, Nick.

Nick Leeson
fax to Simon Jones, Barings Operations Manager for Southeast Asia
February 24, 1995

...there is little argument about who was derivatives technology salesman of 1995. Most people agree that Nick Leeson did more than anyone to raise the awareness of the need for firm-wide risk management.

Clive Davidson
"Profiting from Doom"
Risk, January, 1996, p. 33

Q: What's the difference between O. J. Simpson and Nick Leeson? A: O. J. knew when to cut his losses.

joke quoted in Total Risk
Judith Rawnsley
1996, p. 28

There is a tendency to paraphrase the NRA [and say that ‘derivatives don't kill people, people kill people.'] but the bodies are piling up now and it's wearing a little thin.

David Mullins, principal
Long-Term Capital Management
Futures, May, 1995, p. 18

A derivative is anything that made a loss in 1994.

Nancy Everett, managing director
Virginia Retirement System
Risk, June, 1995, p. 12

All I did as a trader was lose the assets of my own corporation.

William S. Lipschutz, currency trader
The Wall Street Journal, August 14, 1995, p. B8

There will always be a conservative unit trust manager who will use it [Barings' collapse] as ammunition to continue to fight against using derivatives. But I think the market sentiment is that derivatives are here to stay and that it is advantageous to one's basket of portfolios to use them.

Roddy Watt
DST International
Risk, June, 1995, p. 45

Any derivative that made it through last year's trial by fire must be pretty benign.

Jay Mueller, portfolio manager
Strong Mutual Funds
Worth, September, 1995, p. 75

It is childish to say, after the event, ‘I didn't understand what I was doing.'

Wim Van Winden, director of treasury
Heinekin
Risk, May, 1995, p. 39

Robert Citron's strategy to notch up the leverage - and, in happier times, the yield - on a pool of investment funds under his control will earn him a place in the U.S. derivatives hall of fame.

Richard Irving
"County in Crisis"
Risk, March, 1995, p. 27

The year was 1994, and as U.S. interest rates reversed direction upward, investors everywhere scurried to cover their assets. Some weren't fast enough and a new media star was born - the ‘derivatives monster.'

David Nusbaum
"The Sound and Fury of Derivatives Losses"
Futures, October, 1995, p. 84

Singapore should quit focussing on traders who chew gum and don't flush toilets and watch those who falsely trade futures accounts and bring down banks.

Ginger Szala
Futures, January, 1995, p. 8

Of late, each time a market participant suffers a large, newsworthy loss, the term ‘derivatives' is used almost as if it were the explanation. In fact, risk market strategies, such as borrowing short to invest long, have been around for a long time, while the term ‘derivatives' or even ‘swaps' are more recent coinages. In the Orange County case, the losses were not caused by over-the-counter contracts that market practitioners normally consider derivatives.

Frank Newman, acting U.S. Treasury Secretary
"The Art, Not Science of Risk Management"
Controlling Risk
Risk magazine special supplement
June, 1995, p. 2

...most legislative groups just don't want any part of [derivative investment] because it puts a crimp into their political futures if something goes wrong.

John Quirke
Connecticut Teacher's Pension Fund
Futures, October, 1995, p. 85

I've seen things in the market where I scratch my head and can't imagine why people did it. For example, when P&G lost all that money, I couldn't fathom what anyone at that company was thinking when they looked at that formula of the swap and said, ‘Yes, that's exactly what I want to put on.'

Anonymous author
"Confessions of a Structured Note Salesman"
Derivatives Strategy
November 11, 1995, p. 28

It's not a major event unless you lose a billion dollars.

Ronald Filler, Lehman Brothers
Futures, March, 1996, p. 21

It's like the story of the three blind guys standing next to the elephant and trying to figure out what it is. The first grabs the tail and thinks it's a snake; the second leans up against it and thinks it's wall, the third grabs the trunk and thinks it's a tree branch. They don't have anything close to an elephant. That's what we have here with L[ong] T[erm] C[apital] M[anagement].

Marc Chandler, Deutsche Morgan Grenfell
Risk, October, 1998, p. 35

L[ong] T[erm] C[capital] M[anagement] is like what happened with Lloyd's [of London] a few years ago. The risks were misunderstood, and risk-takers not properly informed. But Lloyd's didn't remove the rationale for reinsurance. Likewise LTCM doesn't invalidate the role played by hedge funds.

Anonymous Swiss dealer
Risk, October, 1998, p. 36

It seems LTCM could have survived one Nobel prize-winner, but with two, they were doomed.

Frederic Townsend
Futures, December 2000, p. 75

'We've had a serious markdown,' Meriwether advised him, 'but everything's fine with us.'

Roger Lowenstein
When Genius Failed:  The Rise and Fall of Long-Term Capital Management
New York:  Random House, 2000, p. 147

Blaming LTCM's crisis on leverage is like attributing a plane crash to the fact that the aircraft was no longer safely in contact with the ground:  it identifies the source of overall vulnerability but not the specific cause.

Donald MacKenzie
"Long-Term Capital Management and the Sociology of Arbitrage"
Economy and Society, 32 (August, 2003), 349-380 (p. 360).

 


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Last updated:  January 9, 2011