I have been shouting the derivatives issue since 2002, but it’s...

I have been shouting the derivatives issue since 2002, but it’s like climate change, APRA say the banks are safe, that derivatives aren’t an issue so I’m an idiot unqualified to criticise. Even after NAB lost $4.2bn, a year’s profit back then, on a derivatives gamble. I was assured by a mate working at a merchant bank that their quants were super intelligent and had all the bases covered. He doesn’t work for Lehmans any more. Actually, nobody works for Lehmans any more ...... and if I’m an idiot for calling out super intelligent quants (five years before the event), how dumb are they?

but the point is, they were making money for the banks, so they could pay better rates and dividends, attracting more capital, win-win all round as long as the party keeps going. And the same applies to lending mum and dad deposits to mum and dad mortgage borrowers. There’s a moral hazard there too, which is starting to unravel. Hopefully the derivatives on rate swaps and forex on foreign borrowings, instruments designed to reduce risk, will hold. Well, ok, you and I know they won’t, can’t. There will be a third, or fourth, fifteenth party default somewhere down the line.

 It’s always investing when you make money, but gambling when you lose. The definition depends on the outcome, not the action.