I cannot believe derivatives are still unregulated when they played such a big part in the 1987 stockmarket crash!
"Responsibilities for these fall on the Banks' Boards."
The risk that won't go away ...Like alligators in a swamp, derivatives lurk in the global economy. Even the CEOs of companies that use them, don't understand them.
By Carol J. Loomis
(Fortune magazine) -- This story originally ran on March 7, 1994
... They are ''off balance-sheet'' instruments whose mere existence, leaving aside their complexities, obscures what's going on at the store. .......
....Concocted in unstoppable variation by rocket scientists who rattle on about delta, gamma, rho, theta, and vega, they make total hash out of existing accounting rules and even laws.
........Tellingly, the laws of many countries have considered some derivative contracts to be gambling bets,.....
..........regulators have circled derivatives uneasily, not sure of what to do about them, except to worry.
.......In the 1987 stock market crash, according to the conclusions of the official Brady report, colossal sales of stock index futures by so-called portfolio insurers - whose investment strategies depended entirely on these derivatives - greatly exacerbated the 500-point market decline.
REGULATORS are adamantly insisting these days that CEOs, and their boards, do understand what is going on in the derivatives operations beneath them.
The Office of the Comptroller of the Currency issued 26 pages of guidelines last October as to how national banks should manage the risks of their derivatives business and specifically mentioned more than a dozen times how responsibilities for these fall on the banks' boards.