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Traders, Guns and Money

Traders, Guns and Money

Knowns and unknowns in the dazzling world of derivatives Revised edition

Satyajit Das

Jan 2010, Paperback, 384 pages
ISBN13: 9780273731962
ISBN10: 0273731963
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Traders Guns and Money is a wickedly comic exposé of the culture, games and pure deceptions played out every day in trading rooms around the world. And played out with other people’s money.

A sensational insider’s view of the business of trading and marketing derivatives, this revised edition explains the frighteningly central role that derivatives and financial products played in the global financial crisis.

This worldwide bestseller reveals the truth about derivatives: those financial tools memorably described by Warren Buffett as ‘financial weapons of mass destruction’. Traders, Guns and Money will introduce you to the players and the practices and reveals how the real money is made and lost.

The global financial crisis took almost everyone by surprise and even now new problems keep appearing and solutions continue to be elusive. In the original version of Traders, Guns and Money, Satyajit Das provided a highly prescient insight into the structure and risk of the world financial system exposing the problems that are becoming readily apparent. In a 2006 speech – The Coming Credit Crash – Das argued that: "an informed analysis … shows that risk is not better spread but more leveraged and (arguably) more concentrated…. This does not improve the overall stability and security of the financial system but exposes it to increased risk of a "crash".

List of figures and tables

Prologue

Miracles and mirages

Serial crimes

Beginning of the end/end of the beginning

Knowns and unknowns

Unreliable recollections

Summary judgment

1 Financial WMDs – derivatives demagoguery

School days

It’s all Chinese to me

A derivative idea

Betting shops

Secret subtexts

Leveraged speculations

Under the radar

Whole lotta swapping going on

The golden age/LIBOR minus 50

Warehouses

Serial killings

Forbidden fruit

Derived logic

2 Beautiful lies – the ‘sell’ side

Smile and dial

Market colour

Rough trade

Analyze this

Class wars

Ultra vires

Feudal kingdoms

Uncivil wars

Golden rules

Business models

The medium is the message

Bondage

Tabloid cultures

Conspicuous currency

Ethnic cleansing

Foreign affairs

FILTH

Lost in translation

A day in the life

3 True lies – the ‘buy’ side

Turn of the fork

Risky business

Magic kingdoms

Stripping or stacking/hedging perils, again

Me too

‘Zaiteku’ or the bride stripped bare

The gamble in P & G

Tobashi, baby

Gnomes of Zermatt and Belgian dentists

Death swaps

Investment fashions

Alpha, beta, zeta

Looking after the relatives

Agents all

Unique selling propositions

4 Show me the money – greed lost and regained

Money uncertainty

Toll booths

Take a seat

Efficient markets

On the platform

A day at the races

Black swans, black sheep

Trading places

Secret intelligence

Overwhelming force

Oracle of Delphi

Free money

The colour of money

In reserve

A comedy of errors

Black holes

What’s the number?

Nothing like excess

Nice work if you can get it

Dukes of Hazard

5 The perfect storm – risk mismanagement by the numbers

Shock therapy

Holy risk!

Risk spin

Risqué matters

Placebo effects

Among the unbelievers

Risk cults

In the long run . . .

Modus operandi

Secret trader’s business

Let the good times roll

The perfect storm

Weather forecasts

Endgame

Mean risk

Extreme sports

6 Super models – derivative algorithms

Out of the sheltered workshops

Rocket science

Culture wars

Conveyor belts

Trivial pursuits

Grand oprey

The quest

Genesis

Gospels

Greek tragedies

Failing the model test

CSI (Crime Scene Investigation) 1987 – ‘Oh LOR-dy!’

CSI 1992 – ERM (extremely risky, man!)

CSI 1998 – selling England by the pound

CSI 1998 – Asian fever

Model envy

Omitted variable bias

7 Games without frontiers – the inverse world of structured products

Driving over lemons

The best of times . . . the worst of times

Ghostbusters

It wasn’t me, sir

Heaven and hell

Split personality

Golfing holidays

The flood

Power to the people

Recycling junk

Six packs

Take no prisoners

The usual suspects

8 Share and share alike – derivative inequity

Billion dollar baby

Self arbitrage

Arbitraging others

Taking it over

Buying back the farm

Who’s fooling who?

Strippers

Pearls of wisdom

Own goals

Taxing times

Fund times

9 Credit where credit is due – fun with CDS and CDO

Credit wars

Credit epiphanies

First-to-credit derivatives

Remote credit

Mistaken identity

Heard it on the grapevine

Guaranteed delivery

Re-re-re-re-restructuring – CDS stutters

Beyond the push and pull

Imitation and flattery

Tranche warfare

It’s super

A capital idea

The arbitrage age

Hangovers

UFOs

Geeks with Greeks

Never believe your own lies

Russian dolls

Black holes

Epilogue

The Asian century redux

Vexatious litigation

The more things change

Hot tubbing

Rogue trader

Bangs and whimpers

The China Club

BOAT (Best of all time)

Knowns and unknowns

Afterword: Credit crunch – the new known known of financial markets

Living in the Age of Kali …

Supersize my debt!

Would you like debt with that?

The new liquidity factory

Lying NINJA mortgagors

The lines of transmission

It’s different this time!

The bear comes out of hibernation

Waiting for the other shoe to fall …

Financial shell games

The short and long of it all

Model shock

Missing the mark

Truth in labelling

Regulatory irregularities

Reversion to mean

Credit crunch

Notes

Index

Satyajit Das is a globally known and respected consultant in the area of financial derivatives and risk management. He is the author of bestselling Traders,Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives and Extreme Money.

Expert Reviews

EXTREME MONEY: THE MASTERS OF THE UNIVERSE AND THE CULT OF RISK, the new title from bestselling author Satyajit Das, is now available to pre-order on Amazon.

"Funny, readable and peppered with one-liners from Groucho Marx, "Traders, Guns & Money" offers an ideal primer for anyone tempted to take a walk on the derivative side."
James Pressley, Bloomberg.com

‘……a distinctly timely book ....Traders, Guns and Money, tries to reach out to the mathematically challenged to explain how the world of derivatives “really” works.’
Gillian Tett, Financial Times

‘The sexier side of finance ... at last ... a convincing picture of what life is like in today's modern financial industry.’
Corporate Financier

‘...a fascinating and compelling insight into the world of derivatives... a page turning quality more reminiscent of a John Grisham novel than a dissertation on derivatives.’
FINASIA

‘....more riveting than the Da Vinci Code...in the mould of Liars' Poker...an insider’s account of how derivatives markets work...’
Goola Warden, The Edge

this is possibly the best insider account of a career in investments since Michael Lewis's book Liar's Poker….I can't recommend this book strongly enough.'
www. dna.bloggingstocks.com

‘... a beginner's guide to the often unsavoury and murky world of trading...a surprisingly gripping account ....’
Money Week

‘A worthwhile read for anyone with connection to the financial world.’
WorldFinance.com

…. must read for all CEOs, CFOs, bankers and anyone who cares about what banks are doing with their money.’
Lara Wozniak, www.financeasia.com

‘…an amusing, down-to-earth look behind the scenes of the derivatives market….There were several times I laughed out loud….’
www.runningofthebools.typepad.com

‘... a scalpel of a book’
Financial Engineering News

“Das’ audacity is commendable as he does not hesitate to challenge the greatest intellectuals of quantitative finance like Myron Scholes and Fischer Black….Overall, he does a splendid job of portraying the obsessive mentality of the traders that anything can be traded.”
Medill Money Mavens, August 2010

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