There's no doubt about it, these are crazy times in the market.
My business partner, Dave Maher, came up with the new name for one of the most volatile days in market history ..."Crazy Columbus Day." I think many of us in the industry will always refer to Columbus day with a crazy in front of it.
This is the time to remain cool, calm and collected. Looking back, how did this all happened? It was like a snowball rolling down a hill, gradually building over a period of time and turning into a huge problem. Now that we are sitting in the dust of the crash we ask, who's to blame? It doesn't matter if you're on the Democratic side of the aisle or the Republican side, both parties are to blame for the mess we are in now.
Felix G. Rohatyn, the man who saved New York from financial catastrophe in the '70s, calls them “hydrogen bombs.”
Warren E. Buffett calls them “financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.”
They are all referring to the non-transparent derivatives market. All of these well known financiers figured out the dangers of these toxic financial instruments years ago, yet the Chairman of the Federal Reserve insisted that everything was fine and that the risk in the derivatives market was well spread out.
There was one woman that the CFTC who could have prevented this financial mess. However, this woman left the agency after being verbally beaten down for warning of the possible crisis. Could she have stopped the snowball before it began rolling?
I recently read an article in the New York Times newspaper (online) that I think you'll find fascinating, as I know I did.
Having been a member of several futures exchanges I know that transparency is without a doubt the key to a healthy and vibrant market. The lack of transparency for the past 12-15 years in the derivatives market is nothing short of criminal.
The lack of transparency allowed large banks to make unusually big profits as no one had any idea of what they were actually trading. It all sounded so good on paper. Structured investment vehicles (SIV), collateralized debt obligations (CDOs) all of these looked great in the derivatives modeling world. Unfortunately in the real world, financial modeling does not always work out. And when it comes to big money, the element of greed always comes into play. Greed is something you cannot model into an equation.
Here is the link to the New York Times article I hope you find it interesting, informative and eye-opening.