Nassim Nicholas Taleb, Fooled by Randomness, 2nd edition, hardcover, 2004 [ ]
p.54
The blow up, I will repeat, is different from merely incurring a monetary loss; it is losing money when one does not believe that such fact is possible at all.
p.54
Characteristically, blown-up traders think that they knew enough about the world to reject the possibility of the adverse event taking place: There was no courage in their taking such risks, just ignorance. I have noticed plenty of analogies between those who blew up in the stock market crash of 1987, those who blew up in the Japan meltdown of 1990, those who blew up in the bond market débâcle of 1994, those who blew up in Russia in 1998, and those who blew up shorting Nasdaq stocks.
p.54
They all made claims to the effect that “these times are different” or that “their market was different”, and offered seemingly well-constructed, intellectual arguments (of an economic nature) to justify their claims; they were unable to accept that the experience of others were out there, in the open, freely available to all, with books detailing crashes in every bookstore.
p.54
Aside from these generalized systemic blow ups, I have seen hundreds of option traders forced to leave the business after blowing up in a stupid manner, in spite of warnings by the veterans, similar to a child's touching the stove. This I find to resemble my own personal attitude with respect to the detection and prevention of the variety of ailments I may be subjected to. Every man believes himself to be quite different, a matter that amplified the “why me?” shock upon a diagnosis.
(Taleb, Nassim (2004)., Fooled by Randomness, 2nd edition, hardcover)
(Fooled by Randomness: the hidden role of chance in life and in the markets / Nassim Nicholas Taleb, 1. investments, 2. chance, 3. random variables, 123.3 Taleb, )
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•♥• Colin J. Campbell is a geologist. He is known for writing and speaking on peak oil phenomenon, and the New Energy Era.
Colin Campbell (geologist)
"But this peak has no real great significance, it is the perception and the vision of the long decline that comes into sight on the other side of the peak. That's really what matters." (speaking on the peak oil phenomenon, from End of Oil (2005))
"It's quite a simple theory and one that any beer drinker understands. The glass starts full and ends empty and the faster you drink it the quicker it's gone." (on peak oil, in 2007) [7]
"Banks had been lending more than they had on deposit assuming that tomorrow's growth was collateral for today's debt but failing to see that growth depends on growing, cheap, oil-based energy...So in short, Peak Oil means that debt goes bad." (speaking on the 2008 crash at the New Energy Era Form, 8 May 2012)
http://en.wikipedia.org/wiki/Colin_J._Campbell
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personal note, solar year2013?
In 2005, Wall Street lobbyists, working at the behest of the banks, carved out a special loophole exempting Derivatives contracts from normal bankruptcy law.
0. Derivatives
0.1. Derivatives and other financial contracts
0.2. http://economicsofcontempt.blogspot.com/2009/03/special-treatment-of-derivatives-in.html
0.3. http://marginalrevolution.com/marginalrevolution/2008/09/derivates-contr.html
0.4. It doesn't matter if they could have filed under chap 7 or 11. In both cases, derivatives are exempt and counterparties would have to liquidate all the positions and collateral immediately.
0.5. http://www.stroock.com/SiteFiles/Pub339.pdf
0.6. http://www.rollingstone.com/politics/news/the-watchdog-20100412?page=4
0.6a. The second key, Warren says, is to close the loophole that Wall Street lobbyists carved out in 2005, when Congress overhauled the nation's bankruptcy laws. Before the latest crisis, Chapter 11 bankruptcy was a tool powerful enough to wind down even massive, interconnected institutions like Enron. But the loophole introduced in 2005 allowed the holders of derivative contracts to ignore the freeze on a bankrupt company's assets. The collapse of Lehman Brothers brought the entire economy to its knees, says Warren, because derivatives holders were allowed by law to make a run on the bank, hollowing out Lehman's carcass while the firm's other creditors were frozen out. The resulting panic sparked a market-wide contagion, which led to TARP. If financial reform doesn't shut down this derivatives loophole, Warren warns, "it's not real."
1. The derivative is the differentiated form of something.
2. a derivatives is a financial contract titled in tax haven location based on a treaty between two countries
3. http://www.youtube.com/watch?v=m3im-iJdhv4&
4. contracts, what is a contract?, a legal binding agreement between two or more parties where consideration is exchanged, and a promise of performance is made within a certain time limit or no time limit for that consideration, what is a consideration?,
5. each derivatives are slightly kind of different
6. can you insure that I get what I want in the future
contract, agreement
7. a contract, an agreement based on an underlining instrument
7.1 UNDERLINING instrument, examples of instrument
7.1a other derivative financial constract
7.1b commodities
7.1c interest rate
7.1d credit
7.1e FOREX
7.1f weather
7.1g equities
7.1h mortgages
8. a contract, an agreement based on an instrument
8.1. future/forward contract, agreement
8.2. option, option is used as a hedge
8.3. swap, instrument that has a floating interest rate; floating interest rate; swap that for a fixed rate, swap a floating rate for a fixed rate
8.3a. An inflation swap is a financial bet that pays off according to the degree to which a consumer-price index exceeds or falls short of a pre-specified level at maturity.
9. option, hedge, option to buy, option to [xxx], the right to exercise that option
10. traded, trade, trade the derivatives
10.1. trade this note
11. problem, leverage, borrowed money
11.1. counter party risk
12. Benefit
12.1. Derivatives can be used to shuffle cash flows through time in ways that current accounting rules prevent.
12.2. It is a clever transaction that is initially difficult to comprehend and which hides a simple principle:
12.2a. advancing future cash flows to the present.
12.3. most, if not all, derivatives are constructed to have ZERO tax liabilities, completely legal--the legality is not inherent in the essence of a derivatives financial contract in of itself, the legality is in the construction, the gaps and the holes that the legal framework rest upon, one example being, the contract is titled in a tax haven, most tax haven location is an Island, territorial
13. Down side of derivatives contract
13.1. "financial weapons of mass destruction"
13.2. derivatives as "time bombs" for all parties involved (not a question of if, it is a question of when)
13.3. use of derivatives to hide loans
13.4. Secrecy, SECRET
13.4a. over-the-counter
13.4b. exchanges
13.4c. swaps
13.4c.1. derivative swaps
13.4d. secrecy of over-the-counter derivatives compared with swaps traded on exchanges
13.5. use of derivatives to shroud reported earnings
13.5a. advancing future cash flows to the present thus generating optimistic future earnings
13.5b. use of derivatives to hide loans
14. Buffett suggests that many types of derivatives can generate reported earnings that are frequently outrageously overstated. This occurs because their future values are based on estimates; this is problematic because it is human nature to be optimistic about future events. In addition, error may also lie in the fact that someone's compensation might be based on those rosy projections, which brings issues of motives and greed into play.
14.1. http://www.investopedia.com/articles/optioninvestor/08/derivative-risks.asp
15. http://www.zerohedge.com/article/what-stands-way-taxing-derivatives-1479-lobbyists
16. “teaser rate,”
17. Confidentiality Requirement
17.1. handicapped, in part, by the terms imposed
17.2. Gustavo Piga, a professor of economics at University of Rome Tor Vergata and author of “Derivatives and Public Debt Management,”
17.2a. “In secret deals, intermediaries have the upper hand and use it to squeeze taxpayers,”
17.2b. “The bargaining power is in investment banks’ hands.”
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