Jan Kregel: The Continuing Risk of Derivatives | The Institute for New Economic Thinking
But in many instances, the derivatives themselves are so complex and
so inadequately "stress-tested" that their destructive effects can only
be seen after the fact, which was clearly the case, both in 2008 and
the earlier Asian financial crisis.
The other common feature that Kregel notes is that the major objective
of active, global financial institutions no longer is the maximization
of profits by seeking the lowest cost funds and channeling them to the
highest risk-adjusted return. Rather, they are most interested in
maximizing the amount of funds intermediated in order to maximize fees
and commissions, thereby maximizing the rate of return on bank capital.
This means a shift from continuous risk assessment and risk monitoring
of funded investment projects that produce recurring flows of interest
payments over time, to the identification of riskless "trades" that
produce large, single payments with as much of the residual risk as
possible carried by the purchasers of the package.
The upshot is that most derivative packages mask the actual risk
involved in an investment and increase the difficulty in assessing the
final return on funds provided.
No comments:
Post a Comment