Destructive Creativity, Leverage & The Derivatives Market
London, UK - 16 July 2007, 16:36 GMT - We are grateful to Alexander
Hoare, CEO, C Hoare and Co, Private Bankers, based in the City of London,
for "Destructive Creativity, Leverage and The Derivatives Market;"
and Dr Harald Malmgren, CEO, Malmgren Global, based in Washington, DC, for
"The Fear of Central Bankers -- Flight from
Illiquidity, Derivatives and Heightened Risk of Contagion;"
in reponse to, "Are the Currency Markets Warning
that there is Trouble Ahead? The Precipitous Decline of the US Dollar and
its Impact on the World."
Dear ATCA Colleagues
[Please note that the views presented by individual contributors
are not necessarily representative of the views of ATCA, which is neutral.
ATCA conducts collective Socratic dialogue on global opportunities and
Alexander Hoare is the eleventh generation Chief Executive of C Hoare
& Co, England's oldest private deposit bank based in London. C Hoare
and Co was founded in 1672 by Sir Richard Hoare, and remains 100% owned
by the direct descendants of the bank's founder. Prior to joining C Hoare
& Co, Alexander Hoare worked as a marketing consultant for PA Consulting
Group until 1987. Alexander Hoare is a non-executive director of Jupiter
Green Investment Trust, a member of the Westminster Abbey Finance and
Advisory Council, a trustee of Training for Life, a former trustee of
Trinity Hospice, and a former President of the Groupement Européen
de Banques. Born in 1962, he graduated from the University of Edinburgh
with a BComm with honours in marketing. He writes:
Dear DK and Colleagues
Re: Destructive Creativity, Leverage and The Derivatives Market
Excellent lucid article on ATCA from Dr Malmgren, "The
Fear of Central Bankers -- Flight from Illiquidity, Derivatives and Heightened
Risk of Contagion."
The paragraph on the USD 25 trillion derivatives market is the subject
that intrigues me. For every loser on a derivative contract, there is
also a winner (assuming the losing counterparty hasn't gone bust). This
means we can expect to see huge re-allocation of capital from losers to
winners. Probably the rich will get richer...
Even losers don't always lose, as they may have been entering into the
derivative to hedge another exposure they had. Leverage multiplies all
these effects but doesn't change the ultimate amount of capital in the
If I was a central banker, I would be wondering how many firms are likely
to go bust, giving rise to how many derivative contracts dishonoured,
leading to how many winners frustrated. I see all of this as capitalism
working with its normal destructive creativity. The weak will be destroyed,
and new winners will arise, and survive to thrive another day.
We live in interesting times!
We look forward to your further thoughts, observations and views. Thank
For and on behalf of DK Matai, Chairman, Asymmetric Threats Contingency
ATCA: The Asymmetric Threats Contingency
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