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Strategies & Market Trends : Currents of Currency -- Ignore unavailable to you. Want to Upgrade?

To: Ahda who wrote (25)	3/8/2003 11:24:54 AM
From: Ahda	Read Replies (1) \| Respond to of 594

>>March 8, 2003 Greenspan, Unlike Buffett, Sees Derivatives as Positive Influence By BLOOMBERG NEWS WASHINGTON, March 7 (Bloomberg News) — Derivatives, financial instruments criticized by the investors Warren E. Buffett and Bill Gross, have accelerated globalization, raised living standards, and helped keep the United States from sinking into a deep recession, the Federal Reserve chairman, Alan Greenspan, said today. The use of derivatives — obligations derived from debt and equity securities, commodities and currencies — has "significantly improved the flexibility of economies," Mr. Greenspan told a Banque de France symposium via satellite. That has helped keep the nation's economy afloat as it struggles against the "extraordinary shocks," of a "dramatic" decline in stock prices, a drop in capital investment, the terrorist attacks of Sept. 11, corporate governance scandals and now "geopolitical risks and a fairly sharp rise in energy prices," Mr. Greenspan said. "There can be little doubt that globalization and global finance have been a major contribution to the flattening of the business cycle," he said. "Despite all of that, the American economy has seemingly been able to struggle along without collapsing into a much deeper recession, which certainly would have been the case in the period 20 or 30 years ago." Mr. Buffett and Mr. Gross have said recently that banks and companies do not disclose enough about their use of the contracts. Mr. Gross manages the world's biggest bond fund. Since investors do not need to put up all the money for a trade and because the value of a contract changes more than the underlying asset, derivatives can backfire. In 1998, the New York Federal Reserve Bank helped organize a rescue of the Long-Term Capital Management hedge fund after it lost $4 billion on investments including derivatives. The market for derivatives traded outside exchanges grew 15 percent, to a record $128 trillion in the first half of 2002, measured by the value of underlying assets, the latest figures from the Bank for International Settlements show. That is more than 10 times the value of the United States gross domestic product. Because a derivative is set up to offset risk, its value, measured by the underlying assets, is higher than the amount of money at stake, and Mr. Greenspan suggested that some concerns about the use of derivatives were overdone. Mr Greenspan and Ms Shurgot don't agree. He anticipated low interest rates combined with ease of cash flow would be enough stimulus for the economy. What he did not anticipate was this result called stagnant. The revenue that derivatives create in this economy at this point supercedes the risk factor in his mind.