Quotes about Derivative Instruments

Steve Forbes

Credit default swaps were nothing more than souped up versions of things that have been around for a long time like soy bean futures

It was the souped up nature of the credit default swaps that was in part responsible for the souped up melt down of the economy of 2008 and the great recession thereafter. A credit default swap is an insurance policy that a company will pay off its bonds and not go bankrupt. It is a cross between an insurance mechanism and a stock exchange type security mechanism and through heavy lobbying escaped any kind of regulation. It cost a company no money to write a credit default swap and they were paid to do so. As long as business and the economy was good, it was a terrific business but there was no way of ever knowing how much risk they were taking. So companies who wrote credit default swaps did not have to have the money to pay to back them up if they business was bad. When that happened in 2008 even the largest insurance company in the world collapsed because of the risk of having to pay the credit default swap and the U. S. Government had to take over the insurance company. In 2010, the Obama administration passed a financial reform bill that began to regulate credit default swaps.

Paul Samuelson

I can tell you, because I serve on so many nonprofit boards - where half of us are academics and half of us are from Wall Street - that there's no CEO who understands at all a derivative. All they know is that somebody tells them in their organization, 'We've got a wonderful profit center.'

Sebastian Faulks

Life can be lived at a remove. You trade in futures, and then you trade in derivatives of futures. Banks make more money trading derivatives than they do trading actual commodities.

Daniel L. Doctoroff

Main Street investors, who cannot trade credit default swaps, should not be tempted to trade an instrument with the same risk profile simply because it has been given a different name.

George Soros

In the case of a meltdown, the regulatory authorities may find themselves obliged to step in to preserve the integrity of the system. It is in that light that the authorities have both a right and an obligation to supervise and regulate derivative instruments.

Matt Taibbi

Interest-rate swaps are a tool used by big cities, major corporations and sovereign governments to manage their debt, and the scale of their use is almost unimaginably massive. It's about a $379 trillion market, meaning that any manipulation would affect a pile of assets about 100 times the size of the United States federal budget.

Daniel L. Doctoroff

Consumer groups fought hard to provide investor protections for 'special entities' such as pension funds, schools, and municipalities who purchase swaps. No comparable protection exists in the futures market.

Blythe Masters

The credit derivative market would never have evolved but for the preexistence of the derivative markets because so much of the technology was borrowed.

Fred Ehrsam

People far too often associate derivatives markets with mere speculation, but there are very legitimate businesses that need derivatives to protect themselves against risk.

Jeff Greene

Do we have to regulate derivatives? Yes, we do. 'Cause when I did this in my investments, frankly, no one knew who could pay who. But derivatives have an important place in our economy.

Brooksley Born

Unregulated derivatives like credit default swaps threaten our regulated markets, or indeed our economy without any Federal agency knowing about it.

She had warned about the unregulated derivatives 10 years earlier, but to no avail. See {637987}. Then when she had been proven prescient in the Meltdown of 2008, Congress was more interested in how she thought they could prevent future problems with derivatives. Some were adopted but not all. The financial institutions claimed that they needed derivatives to hedge positions and hence “stabilize” the system. Of the members of Congress who voted on this issue, almost none understood derivatives and credit default swaps were and how they worked. But some were sure they were bad, and others were sure that they were necessary for stability. Derivatives can, and did, get so complicated that the people who originally created them sometimes cannot tell whether they are at risk or not. Even computer cannot calculate the value and risks of these instruments because the values and risks depend on what happens to other companies or instruments which themselves have derivatives insuring them. See {620038} for a good description of the difficulty.

Derivative Instruments Quotes