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Are Derivatives Financial Weapons of Mass Destruction?

Are Derivatives Financial Weapons of Mass Destruction?

This is the first in a series of articles, where we will be discussing complex Derivatives structures (exotics), their usage, recent fall-out and future. 
 
Having been Head of Derivatives Technology at Bankers Trust, I will start in this first article with a lesson from the past: the famous Bankers Trust versus Proctor & Gamble case. This occurred in 1993 and illustrates how a highly leveraged structured deal can go completely wrong. Despite the fact this happened more than 15 years ago, the events are very similar to what happened recently in the credit derivatives space, although on a much smaller, micro space.
 

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