| heinz, I think the problem is not the derivatives, themselves, but the mathematical formulae. The problem with the bell curves the stat geeks come up with are somehow not reality based. Duh, as if those guys know from reality. <g> And the real problem is that firms like Enron and LTCG and Orange County and all the banks and all the brokerages and even Humpty Dumpty start out doing extremely high risk, low return, low frequency of loss trades. As I told one friend who traded at a major endowment fund: "You make a half, you make an eighth, you make a quarter for days and weeks and months. Sometimes for years. Then, you will eventually lose a ten, lose a twenty, lose a thirty and you will go belly up." They win many more trades than they lose. But when they lose... Like playing Russian Roulette with a hundred shot revolver for a dollar every time you win. Most of the times, your expectation is that you win the dollar. But when you lose, somebody has to clean the wall next to where your brain used to be. <g> |
