["Traders, Guns & Money"]

[fiefoe]

This is really not a pleasant book to read. In the four chapters I've read through, Satyajit Das rarely has a kind word for anybody involved in the finance business - and it's certainly not his fault.

• 'Phae three. Costs rise to levels that make the economies uncompetitive.. Politicians talk bravely about the "need to move up the value chain".'
• If the transaction was terminated and OCM failed to pay, then these profits would be written back. The traders would lose out. It was imperative that OCM be placed on life support at least for the time it took the traders to receive their share of the large profits.
• 'We can use derivative instruments to manage the price risk." I would then pause for dramatic effect... The Chinese would start to clap. In suggesting a solution to the poor farmer's dilemma, I was a hero of the Revolution.
• What it meant was that the market needed some punters to speculate to allow others to transfer risk to them.
• The cash settled and off balance-sheet nature of derivatives (means) you can now simulate an investment without actually ever owning anything... opening up a whole new frontier - regulatory arbitrage.
• Greenspan might wax lyrical about the unbundling of risks but we spent most of our waking hours frantically rebundling the risks and stuffing them down the throats of any investor we can find.
• Wasn't the investor trading derivatives by buying the inverse floater? Not exactly: the investor was buying a bond. We had legal opinions that said that the inverse floater was a 'security'.
• 'I forgot the quants! When last heard from, they were trying to develop a model for lying.'
• There's an inherent tension in the relationship between traders and sales staff. Are traders there to help salespeople service their clients? Are the sales staff merely there to generate transactions for the traders?
• Then London was broked into New York.
• They can't refuse the promotion as they fear working for someone they can't stand.
• Management rarely advances; they are usually in retreat.

__ yield curve was steep - interest rates for five years were much higher than for six months
__ 'basis' risk, 'trading' risk (the large size of the position) and 'funding risk (money on hand to make potential margin calls)