I have no clue how long this can be ignored but there needs to be serious regulation coming for the entire industry, especially currency derivatives.
Derivatives Could Cause Another Meltdown: Mobius
Published: Monday, 21 Sep 2009 | 12:14 PM ET
By: Robin Knight
Derivatives caused the market Armageddon of recent years and if left unchecked by global leaders, the same market could cause another catastrophe, Mark Mobius, executive chairman of Templeton Asset Management, told CNBC Monday.
When asked by a CNBC viewer what kind of Armageddon could be expected if the derivatives problem is not addressed, Mobius replied: âThe same kind of Armageddon that we just had, what we just saw in the last few years has been caused by derivatives.â
The lack of liquidity, transparency, coupled with its sheer size means the derivatives market poses a major risk to financial stability, according to Mobius. The currency derivatives market is especially at risk of causing problems, but interest-rate derivatives also, he said.
Mobius thinks that global leaders meeting for the G20 summit in Pittsburgh next week should focus almost solely on the derivatives trade. Debates over how much bankers are paid in bonuses should be bumped down the agenda, he said.
The derivatives market is ten times the total GDP of the world, or $600 trillion, Mobius pointed out. And the market has been responsible for numerous bankruptcies in recent years as companies donât know what they have on their books and donât read the fine print, he said.
âThe scary thing for me as an investor is what a company has in their books. One of the first questions we ask a company is: âWhat derivatives do you have?â Because so many companies have gotten into deep trouble because of that. Why? Because thereâs no transparency, thereâs no liquidity,â Mobius said.
As central bankers around the world keep interest rates low, it is obvious that there will be another rise in various asset classes, Mobius said. Commodities and stocks will be the two main areas to draw money in, according to Mobius. âItâs already happening,â he added.
Mobius thinks that different banking activities should be kept separate in order to protect investors and consumers.
âYou have banks that are doing everything under the sun, selling and buying derivatives, doing consumer banking, doing corporate banking,â he said. âTheyâre not banks anymore, theyâre gamblers.â
Mobius also said that the G20 leaders should also focus on keeping protectionism at bay when they meet next week.
Derivatives Could Cause Another Meltdown: Mobius
Published: Monday, 21 Sep 2009 | 12:14 PM ET
By: Robin Knight
Derivatives caused the market Armageddon of recent years and if left unchecked by global leaders, the same market could cause another catastrophe, Mark Mobius, executive chairman of Templeton Asset Management, told CNBC Monday.
When asked by a CNBC viewer what kind of Armageddon could be expected if the derivatives problem is not addressed, Mobius replied: âThe same kind of Armageddon that we just had, what we just saw in the last few years has been caused by derivatives.â
The lack of liquidity, transparency, coupled with its sheer size means the derivatives market poses a major risk to financial stability, according to Mobius. The currency derivatives market is especially at risk of causing problems, but interest-rate derivatives also, he said.
Mobius thinks that global leaders meeting for the G20 summit in Pittsburgh next week should focus almost solely on the derivatives trade. Debates over how much bankers are paid in bonuses should be bumped down the agenda, he said.
The derivatives market is ten times the total GDP of the world, or $600 trillion, Mobius pointed out. And the market has been responsible for numerous bankruptcies in recent years as companies donât know what they have on their books and donât read the fine print, he said.
âThe scary thing for me as an investor is what a company has in their books. One of the first questions we ask a company is: âWhat derivatives do you have?â Because so many companies have gotten into deep trouble because of that. Why? Because thereâs no transparency, thereâs no liquidity,â Mobius said.
As central bankers around the world keep interest rates low, it is obvious that there will be another rise in various asset classes, Mobius said. Commodities and stocks will be the two main areas to draw money in, according to Mobius. âItâs already happening,â he added.
Mobius thinks that different banking activities should be kept separate in order to protect investors and consumers.
âYou have banks that are doing everything under the sun, selling and buying derivatives, doing consumer banking, doing corporate banking,â he said. âTheyâre not banks anymore, theyâre gamblers.â
Mobius also said that the G20 leaders should also focus on keeping protectionism at bay when they meet next week.
