Traders, Guns & Money: Knowns and unknowns in the dazzling world of derivatives
by Satyajit Das
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Book Summary Information
Author: Satyajit DasEdition: Paperback
Published: 2006-05-15
ISBN: 0273704745
Number of pages: 352
Publisher: FT Press
Book Reviews of Traders, Guns & Money: Knowns and unknowns in the dazzling world of derivatives
Book Review: A must for anyone with money that you may know what the teller in your local bank is selling you
Summary: 5 Stars
I had very high expectation of it because of Frank Partnoy's praise in the back cover. Partnoy's Fiasco "was" the most interesting read of this topic, about how derivatives traders and salesmen reap the face off their customers. I love it so much that I search on Google in order to have a look of the Indian author and to know him more, which I found on the Publisher's site an interview with the author and his photo. Below please find some shortcut for your reference. Hope you like them.
"It's not a technical book. It is part thriller, part expose. It a fun read but it teaches you something about the business. It will show how these markets work. It's also satiric, irreverent and black in its humour...It is a collection of lots of stories. Here's a few:
Story 2
Around 1999, I met an ERM (Enterprise Risk Management) advocate,. Dudley , the head of risk for an investment bank. He wanted to meet me. I had no idea why. I soon discovered that Dudley had reached ERM. It was the "new", best-est thing. It was revolutionary. Dudley was at the forefront. He would give me an example of the problems he was trying to model.
"Let's say our head trader has a complex trading strategy only he understands, yes". I nodded. I didn't think any strategy could be that complex, at least if a trader had put it on. But it was quite likely that no one knew about it. The trader may have not told anyone. "Let's say the trader bicycles to work". I did not think this likely. Traders prefer Porsches. Not wishing to prolong the discussion, I did not disagree.
"On the way to work, he is hit by a bus. His mobile phone is knocked away from him and damaged. He is unconscious. Assume that simultaneously market prices move due to surprise news. This news is vital to the trader's position. He does not know. Nobody knows what to do with his position". I nodded. "That's not all. Assume simultaneously, there is fraud in another bank". I nodded in real agreement. That was very likely. "This bank goes into bankruptcy. It creates a financial crisis. This of course affects the trader's position. He doesn't know of course. He's unconscious". I was hoping he would get to the point soon.
"At the same time, assume there is an accident at a power plant. There is a blackout. The bank's back-up generator fails. The mechanic forgot to check the fuel tank. The bank's computer system goes down. The trader can't get prices or model the risk on his position". I reminded Dudley that the trader was unconscious, maybe deceased. "Exactly", he replied cheerily. It went on.
Eventually after a tragedy of biblical proportions had been outlined, Dudley reached the end. "I am modeling the probability that such an event could occur". For me, it was one step too far in the search for "holistic risk". Risk management seemed to have completed its transformation into pure entertainment. Dudley seemed the epitome of a risk manager who would drown crossing a river that was 12 inches in depth on average.
Story 3
Nero and I marketed together a fair bit. I provided the technical bits. He smoozed the clients. Nero and I were making a pitch for a new structured product with a portfolio manager from an overseas fund over dinner. Dinner was a 3 martini, 2 bottles of French red wine and cigar and brandy affair. I kept looking for a moment to interject and explain the structure and benefits of the trade. I didn't get a chance.
Towards the end of the evening, the fund manager turned to Nero and said: "The girls are coming up to my room, right?" I looked at Nero surprised. "You didn't forget the stuff, it drives the girls wild?" Nero muttered something and carefully steered the conversation in a different direction. After dinner, Nero and I left the hotel. Nero stopped and drew his hand in a cutting motion across his throat. "Remember IBGYBG," he said. "I be gone, you be gone. Got it kid." A week later the portfolio manager was on the phone. "Been thinking about your deal. Like it a lot. Send me a term sheet. I think we can do something there." We closed a juicy trade for $200 million booking profits of over $2 million.
Years later, one of Nero's boys was pitching a deal to a client. Coincidentally, I happened to be a consultant to the customer. During the presentation, I asked some questions. Nothing personal, I was doing my job. The presentation wasn't going to plan. Eventually, the salesman stood up and said: "The product is unsuitable for you. It is intended for someone less sophisticated." I rang and told Nero. He killed himself laughing. True lies, all of them.
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