Satyajit Das: Another..Chapter in.."Financial Innovation"

Another Glorious Chapter in the History of “Financial Innovation” - Satyajit Das

I wonder is this (highlighted) what Anglo got caught up in :

provide a link next time. here’s one for your article: … 888.0.html

Apologies, thought I had.

I hope that isn’t what caught Anglo out, but maybe bungaloid or jmc can shed some light?

Would currency accumulators be the sort of things Anglo were interested in?
I presume they would be buying rather than selling given their exposure to USD and GBP?

Although the recent anglo annual report was suspiciously vague on their book my guess is that the big ramp up (and the declared loss) was due to just buying a lot of vanilla interest rate swaps. Dont remember seeing a large increase in FX positions. Without more details of their trading activity my guess is that the extra E100 billion of activity looks more like a late stage LTCM naked put strategy than any kind of sophisticated trading strategy.

I suspect that anglos trading operation was the classic good times set up. During the good times almost any fool could make some money trading but once the market started heading south only the real traders survived. Not too many of those out there and I would not expect to find them at an inconsequential player like anglo. Once the slide starts the only to thing to be decided is just how much money you loose. A lot if you shut out the trading positions fast. Or truly horrible amounts of money if you dither. In normal markets the difference between the two is weeks/low months, In severely dislocated markets the difference between the two is often only a matter of days/weeks.

The only question left now is just how much money their trading operation has lost, and whether it is an eight, nine, or even ten figure number.

Thanks jmc; I’m a little perturbed by your possibility of a ten figure number, though!

So am I. Normally for E200 billion nominal of derivatives the mostly likely worse case scenario would be low 9 but as I mentioned in another post it looks suspiciously like the ramp up of derivative positions in the last 18 months might have been a desperate attempt to trade the whole bank out of the black hole it was getting sucked into. In this scenario the sky is the limit regarding losses if past history is anything to go by.

Adding to this the fact that these are not normal times, individual trading desks for some of the big players made serious multi-billion losses in very short periods of time in the last year before being shut down. In this situation I see the potential for a player like anglo potentially losing a sizable chunk of the nominal. Small time players do very stupid things in desperate times. With a bit of luck they were so out of their depth that they did not have the wherewithal to make the really scary plays. Unlike LTCM.

We really gotta have an education/article sticky or forum so all this stuff can go in the one place.

Credit Default Swaps: Quantum Hedges - Part 1 … c4b.0.html … 5c1.0.html

Credit Default Swaps - Quantum Hedges - Part 2

And if you want all the gory details of CDS’s you can read about them here in the Merrill Lynch Credit Derivatives Handbook…Vol 1

and Vol2 …

Lessons of the Global Financial Crisis: 1. The End of Ponzi Prosperity … c37.0.html

Lessons of the Global Financial Crisis: 2. Whatever it takes … 833.0.html

Lessons of the Global Financial Crisis: 3. Built to fail - All by Satyajit Das … 0c9.0.html

Catastrophic to Awful! - The Banking Spin Cycle … t_id=10228