First I have to understand the problem. If many are buying derivatives which is an insurance policy against default or against currency fluctuation, it follows that the perceived risk has been increasing.
For me to learn I need to refer to the real world: Say, a few African and Middle Eastern operators come out with a license only -no money- and ask Nokia to bid for the roll out of a network.
Nokia, in the past, would decline to bid. But enter derivatives, Nokia hedges against the operator not paying and bid for the job.
Since there is not risk, everyone can ask and many will bid. All in the vain expectation that the money will come from somewhere, i.e., the insurance company.
Then Nokia doesn't get paid and has a claim. How, exactly, Nokia will recoup the money? I need to understand that.
Because if many start defaulting, in a short period, is akin to many crashed cars, hurricanes, fires, building collapsing, airplanes crashing, at a single go and the insurance company hasn't got the money to pay for all the claims.
Is that the case?
Why I am telling you that. Siemens has two projects (one in Nigeria another in Iran) I worked for and in both they didn't get paid.
They are not crazy, and are fairly conservatrive company. How comes they keep getting into these deals?
First they keep the factories producing and people employed in Germany. Second they avoid Ericsson, Alcatel and Nokia getting the deal and keeping THEIR factories and THEIR employees active.
But where's the money coming from?
|
