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Non-Tech : Derivatives: Darth Vader's Revenge -- Ignore unavailable to you. Want to Upgrade?

To: Thomas M. who wrote (1089)	4/5/2002 6:50:44 AM
From: Henry Volquardsen	Read Replies (1) \| Respond to of 2794

poor wording on my part. when I refer to hidden or unexpected risks in a derivative structure I am referring to the type of risks that are caused as direct outgrowth of the economic structure. Such as the risk that occured in the type of structures that Bankers Trust got into trouble for selling to clients. Risk that is hidden because the client doesn't realize that if the market moves in a certain manner it will generate losses. This is the type of derivative risk that I believe most people are rightly concerned about when they refer to derivative risks. That is what I am trying to say when I say 'There were no hidden or unexpected risks that were associated with derivative structures that caused losses.' There was nothing of that sort that was hidden from Enron management. The risks were very clear. Or should have been. They had an enormous amount of debt and insufficient revenue. That risk is not the function of some derivative structure that responds to markets in an unanticipated manner. The 'derivative' structures were merely structures designed to generate more debt without revealing it. But the use of these faux derivatives did not generate additional market risk that straight debt would not have generated. The fact that these risks were hidden from the public is a function of the fact that they were hidden in the Partnerships AND the very questionable accounting treatments that kept them from being consolidated on Enron's balance sheet.