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Non-Tech : Derivatives: Darth Vader's Revenge
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To: Worswick who wrote (118)9/21/1998 10:46:00 AM
From: Henry Volquardsen  Read Replies (1) of 2794
 
Clark,

I am a little skeptical of the article you reference. This guy Smithers seems to make a lot of extrapolations and assumptions and then refers back to them as fact. He states that equity options market makers are underpricing catastrophic risks yet provides no specifics that one can use to analyze the situation. He then uses the statement as a given in his ongoing critiques. Another questionable device is throwing out the notional amount of Japanese bank derivatives without making any comments regarding a qualitative analysis of the positions. He just lumps all derivatives in together. Even his numbers about bank capital are extrapolations. Anyone willing to do an hour or two of research would be able to find very precise numbers on global bank capital and would not have needed to use assumptions. Being in the head of a consulting firm this individual would certainly be capable of accessing such research.

There are certainly risks and concerns about the global banking system and derivatives exposure. We've discussed many on this forum. But the referenced article strikes me as imprecise and inflammatory. I don't know the individual and can't comment on his capability but can't help but wondering if the tone of his article is influenced by his desire to sell his consulting services. After all if things are bad there is more reason for people to pay him for his help.

Henry
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