Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives

"Knowns and unknowns in the dazzling world of derivatives" great subtitle and the author really delivers. I love books on finance. Possibly stemming from being dropped on my head as a child. Some are pretty brutal to read but this one is as entertaining as it is educational. I was familiar with some derivatives like futures contracts and options, before reading this book. Now derivatives like CDO (Collateralized Debt Obligations), CCO (Commodity Collateralized Obligations), currency swaps, interest rate swaps, or even inverse floaters make sense to me. Obviously I am far from being an expert on any of these, but after reading this book I can now understand why Warren Buffet called derivatives "Financial Weapons of Mass Destruction". The author does a great job educating you in story-like fashion. The book told of numerous investors that ended up getting screwed by some pretty good salespeople at different dealer firms. Buyer beware comes to mind time and time again as I read these episodes. The treasurer of Orange County California got in way over his head because he was making a ton of money. Which he attributed to his financial wisdom. Then when interest rates went against him and his county lost 1.5 billion dollars he changed his tune saying he had some kind of brain defect and could not understand numbers. That would have been handy for the voters of Orange County to know BEFORE they elected him to office. I guess there are many reasons to use derivatives like avoiding taxes, moving risk from highly regulated areas to less regulated areas, using loans as collateral for even bigger loans, or repackaging bad credit in a way that transfers the risk to someone else. The more I learn, the more I am amazed that supposedly very intelligent people see these as a great way to make money. It just goes to show that most people invest in things they do not understand. I read an article by the author, Satyajit Das today. In the article he mentioned that "1 dollar supports 20-30 dollars worth of loans" and that the derivatives market at the moment is valued at 485 trillion dollars, or to make that a little more understandable, 8 times the global gross domestic product. 8 times the GDP of the entire planet. Wow. This book is a great introduction to the world of derivatives and I highly recommend it.

I really enjoyed reading the book Traders, Guns, and Money: Knowns and Unknowns in the Dazzling World of Derivatives by Satyajit Das. It is an interesting book in that it is a fictionalized autobiography of Das. As the book outlines the author's professional life in finance, it describes how he got involved in financial derivatives. The primary purpose of the book is to give a primer on derivatives, how they were created, how they are used, their benefits, and their dangers. The author's use of humor along with the hilarious vignettes of his finance associates (Nero, Clem/Crem, Adewiko, Budi, etc.) and funny anecdotes from his career made the book fun to read. The book really helped explain what exactly derivatives are (giving me a good review of some of what I was taught in college) and how they are used today. I also appreciated the in-depth analysis of several well-known instances where derivatives were used by investors and companies which really helped to demonstrate their application in the real world as well as the oftentimes hidden dangers of using these financial tools. I found his discussion of the currency swap done by the Walt Disney Company in the 1980's to be of particular interest to me. Despite the fact that I previously read the HBS case study during a Derivatives and Risk Management course which I took as a student at Harvard, Das's explanation of the incident really gave me an even better understanding of how exactly the transaction was structured and how it eventually went wrong. His explanation of why Disney's financial advisors made the deal so complex was also amusing. (You will have to read the book to find out.) Moreover, Satyajit Das really underscored the complex nature of derivatives and their use in either speculative bets or in hedges. Previously, I had considered these financial tools as an efficient and safe way to hedge. However, the author points out that there are significant risks even when they are only utilized as a hedge. Hence, I really enjoyed this entertaining and informative book. The author explains complex concepts in a clear, readily understandable, and comical way. I would recommend this book to anyone who wishes to learn more about financial derivatives or the world of finance in general and who does not mind being entertained at the same time. Thank you for your time.

Satyajit Das has performed a great service to all of us who have heard talk of derivatives and wondered what all the fuss was about. It is both an entertaining and informative read and an indictment of the investment banks that crank these financial products out. He shows first how Wall Street fools its clients by creating incomprehensible products chock full of profits to them as seller but markets them as the financial cure for cancer, without including the long and unwelcome list of potentially deadly side effects in their sales pitch. Second, he shows how Wall Street has fooled itself into believing they understand and have properly hedged their own exposure. The system will inevitably blow up, but the traders will already have moved on with their gigantic bonuses made using other people's money and someone else will be left to hold the bag and clean up the mess.

This is not another journalist musing on the financial world. This is not an academic explanation of how financial instruments work. It's something else entirely -- a rare inside glimpse into the world of derivatives by a literate professional who's been a handshake away (or closer) from the major events in the market. Das leavens a series of technical discussions about particular strategies with more entertaining glimpses into the culture the drives the deals. Although I have bones to pick with the book's episodic structure, I can't think of a better way to get a crash course in how the capital markets really work.

If you work in Derivatives, you should read this book. It is quite entertaining. You don't have to agree in public with everything the author puts forth, but there is insight to be gleaned especially for junior people. It is important to hear both sides of a debate, however disenchanted one party becomes. This book is a lively one-way exit interview for a derivatives professional who sugarcoats nothing.