Thoughts

“Over-reliance on technology and overconfidence in the prowess of academics helped foster a near blind dependence on dubious data and inadequate models. These were, in turn, transformed into the seemingly unshakeable foundations of multi-billion dollar investment decisions. Greed, complacency, and fraud followed, and as the flow of money circled around, many of the original assumptions are turning out to be dicier still.”
- Michael J. Panzner, Revenge of Frankenstein Finance, August 06, 2007

“From educating our children to buying a place to live, from the way we manage our credit and finances, from greasing the wheels of global trade to overcoming the dizzying array of risks and uncertainties faced by businesses large and small, derivatives have played a major role.

One way in particular these instruments have helped is by facilitating a process known as “securitization,” whereby loans, financial instruments, and other assets are bundled together and sold to investors as a package. This has created tremendous economy-of-scale benefits. It has allowed individuals seeking financing say, for the purchase of a home, to tap into a plethora of funding sources in the U.S. and around the world, helping to lower their interest costs. It has also enabled people to obtain products and services personalized to their needs and risk requirements.”
- Michael J. Panzner, The Coming Disaster in the Derivatives Market, November 12, 2005

“Needless to say, this has resulted in a substantial percentage of U.S. housing loans being entirely fraudulent. It is increasingly becoming clear that a large proportion of modern finance rests on similar deceptions, with asset-backed commercial paper, securitization in general — and much of the derivatives market — resting solely on aggressive obfuscation of economic reality in pursuit of fees.”
- Martin Hutchinson, The Fed’s Decade of Deception, January 10, 2008

“Derivatives generate reported earnings that are often wildly overstated and based on estimates whose inaccuracy may not be exposed for many years.”
- Warren Buffett ( BBC Article ), Avoiding a ‘Mega-Catastrophe’, 2003

“In my view, these paper promises — along with the vast, Wild West-like markets that built up around them — had all the ingredients necessary to spark an incendiary explosion in the financial system and the economy, including high levels of complexity and lack of understanding about unintended consequences, in-built leverage (often of an astonishing scale), valuations and structures based on incomplete or false assumptions, a lack of transparency, and the ease with which they allowed all sorts of counterparties, products and markets to become connected to one another.”
- Michael J. Panzner, Derivatives at the Bottom of Every Chasm, February 03, 2008

“But the truth is that what we are witnessing is just one small phase of a far-reaching and significantly more destructive unraveling process, one that stems from a build-up of untenable obligations on so many fronts that it boggles the mind to think how things managed to remain so stable for as long as they did.”
- Michael J. Panzner, Plenty More Nightmares to Come, February 02, 2008

“The UK’s Financial Services Authority warned last week that there was probably more fraud on the way, either because of misdeeds surfacing from more lax times or because individuals were now pressed into wrongdoing by falling markets. Place your bets on how many cases will involve derivatives.”
- Tony Jackson, Derivatives is an industry tainted by its side effects, February 3 2008

“it has often been innovation without substance. And it’s achieved nothing. It’s been cosmetic.”
- Satyajit Das ( Source )