Derivatives the Wild Beast of Finance

This new paperback edition of the successful 1998 cloth edition proves the soundness of many of Dr. Steinherr's earlier predictions as well as his alternative view of the role of derivatives in the world economy. Often regarded as the villain behind such recent financial disasters at Barings, Orange County, and the ERM crisis, derivatives, Steinherr argues, are just the opposite: financial instruments that ensure risk management in global markets, safeguarding against financial collapse and disaster.

In den letzten 20 Jahren ist der Derivatehandel regelrecht explodiert. Die Struktur dieser Finanzprodukte wird jedoch zunehmend komplexer; die Beträge werden immer höher. Derivate wurden häufig als die großen Übeltäter identifiziert, die für viele der wohl bekanntesten Finanzkatastrophen, einschließlich der Barings Bank- und ERM Krise, verantwortlich waren. Dies ist die neue, komplett überarbeitete und aktualisierte Broschurausgabe von "Derivatives: The Wild Beast of Finance". Der Inhalt wurde komprimiert und um einige der komplexeren Themen gekürzt. Dadurch wurde diese Ausgabe für Anleger und Finanzinteressierte verständlicher. Steinherr vertritt hier die Ansicht, daß Derivate - wenn man umsichtig vorgeht - ein wirksames und durchaus akzeptables Anlagemittel sind. Darüber hinaus sind sie ideal geeignet, um effektives Risikomanagement in globalen Märkten zu gewährleisten und mögliche Finanzkatastrophen einzudämmen.

Preface to the Revised Paperback Edition

Introduction

Part I A Look Back

1 Evolution of Finance

Venice, April 1470

1 The functions of finance

2 The first step towards managing financial risk: diversification and collateral

3 The second step towards managing financial risk: limited liability, bankruptcy laws, seniority rules, balance-sheet structure

4 The third step towards managing financial risk: creating tradable instruments and liquidity in organised markets

5 The final step towards managing financial risk: derivatives and financial engineering

6 Could the acceleration in financial innovation since 1970 have been predicted?

7 Conclusion

Notes

2 The Americanisation of Global Finance

Minnesota Banc Corporation

1 The emergence of the American model of finance

2 The crowning achievement: risk-management finance

3 Maintaining market liquidity: the sine qua non of the "American model"

4 Global finance: the result of exporting the "American model"

5 Conclusion

Notes

3 Dramatic Events

How George Soros sees it

1 The EMS crisis of 1992-93

2 Metallgesellschaft: in the red or in the black?

3 Barings: victim of high-leveraged speculation and loose controls

4 Bankers Trust: caveat emptor

5 David Askin: the fallen star of the mortgage-backed securities sky

6 Instability in emerging markets: Mexican tequila

7 Hedge funds and the collapse of LTCM

8 Conclusion

Notes

Part II Derivatives and Their Markets

4 The Revolution in Risk Management

Farming for the future

1 What can derivatives achieve?

2 Price discovery and volatility

3 Is risk management a fundamental corporate objective?

4 Risk management: science or fad?

5 Risk management: some examples

6 Conclusion

Notes

5 Mutualisation of Risk on Exchanges

Chicago's other side

1 Evolution of exchange-traded financial derivatives

2 Organisation of the exchanges

3 What makes a successful exchange-traded contract?

4 New product developments on the exchanges

5 Exchanges for a global market

6 Conclusion

Notes

6 Customised Risk Management in OTC Markets

How to lose money on a long put when markets crash

1 Market developments

2 Significant bank involvement

3 Contagion risk

4 Regulatory inadequacies for the specificities of OTC markets

5 New developments

6 Conclusion

Notes

Part III Public Policy Options

7 Are Derivatives a Threat to Global Financial Stability?

The global financial crash of October 2002

1 Systemic risk illustrated with the crises in Asia and Russia

2 Derivatives: the dynamite for financial crises

3 Global derivative finance: the fuse for contagion

4 Conclusion

Notes

8 Challenges for the Established Financial Order

The butterflies of finance

1 The classical paradigm of financial policy

2 Paradise lost

3 Reducing systemic risk: the Basle approach

4 Conclusion

Notes

9 A Financial Policy Model for the Next Century

The challenge of global money

1 Reform of the international financial system

2 The architecture for regulatory rethinking

3 Risk management through clearing-houses

4 Phasing out the banking franchise and institutional regulation

5 Redefining the relationship between central banks and financial intermediaries

6 Conclusion

Notes

Part IV A Look into the Future

10 Derivatives: the Future of Finance

Antofagasta (Chile), summer of 2020

1 The ascent of institutional investors

2 Ownership and corporate governance

3 Macro futures

4 Real estate futures

5 The end of banking?

6 Conclusion

Notes

11 Conclusions

1 The origin of the species

2 OTC versus exchange-traded contracts

3 Americanisation of global finance

4 Risk management: one of the most important innovations of the 20th century

5 Work of the devil or social benefit?

6 Financial structure in the 21st century

7 Shifts of power

8 Crystal ball gazing

Glossary

References

Index