Fixing The Derivatives Market

Mon Apr 19, 2010 2:46:32 pm by Dustin
Filed under Dealing with People, Finance, General

Derivatives are an interesting beast in the financial world. They can be very powerful or very hazardous.

Although I find finance fascinating, I am no expert. I do know there is some ambiguity between how GAAP applies to derivatives. This miscommunication causes investors and the public to be unaware of the true state of a company’s assets and debts. AIG is a good example of this. At its peak, it was 11 times leverages. That means $11 of debt for every $1 of assets. I personally do not feel all debt is bad. There becomes a point where my investment becomes hindered.

Chris Dodd thinks would we should publicly trade derivatives. Rather I would vote we get them completely on balance sheets. This get the numbers in the hands of investors quarterly. Public traded assets get forgot; quarterly reminders puts pressure of executives.