Through the eyes of an inventor of new markets, Good Derivatives: A Story of Financial and Environmental Innovation tells the story of how financial innovation – a concept that is misunderstood and under attack - has been a positive force in the last four decades. If properly designed and regulated, these “good derivatives” can open vast possibilities to address a variety of global problems.
Filled with provocative ideas, fascinating stories, and valuable lessons, this book will provide both an insightful interpretation of the last 40 years in capital and environmental markets and a vision of world finance for the next 40 years.
As a young economist at the Chicago Board of Trade, Richard Sandor helped create interest-rate futures, a development that revolutionized worldwide finance. Later, he pioneered the use of emissions trading to reduce acid rain, one of the most successful environmental programs ever. He will provide unique insights into the process of creating these new financial products. Covering successes and failures, he describes the tireless process of inventing, educating and creating support for these new inventions in places like Chicago, New York, London, and Paris, and how it is unfolding today in Mumbai, Shanghai and Beijing.The book will tell the story of the creation of the Chicago Climate Exchange and its affiliated exchanges (European Climate Exchange, Chicago Climate Futures Exchange, and Tianjin Climate Exchange, located in China). The lessons learned in these markets can play a critical role in effectively addressing global climate change and other pressing environmental issues. The author argues that market-based trading systems are a far more effective means of reducing pollutants than “command-and-control”. Environmental markets may ultimately help to find solutions to issues such as rainforest destruction, water problems, and biodiversity threats.
Written in an engaging, narrative style, Good Derivatives will be of interest to both practitioners and general listeners who want to better understand the creative process of financial innovation. In the middle of so much distrust of markets, it is also a recipe for how transparent, well-regulated markets can be a force for good in the environmental, health, and social areas.
©2012 Richard L Sandor (P)2012 Audible, Inc.
"No one has more insight into the power of markets to achieve environmental objectives than Richard Sandor. In Good Derivatives, he combines his depth of experience in the marketplace with his passion for telling stories." (US Senator Jeff Bingaman, D-NM)
"This book represents the work of one of the world's most brilliant, inquisitive, and visionary minds. Richard Sandor knows this subject as an economist, a trader, an executive, an entrepreneur, but most of all, as a teacher. No one else in the world could have written this book." (Ambassador Clayton Yeutter, Past Secretary of the U.S. Department of Agriculture and U.S. Trade Ambassador)
This book delivers on its promotional statement. Yes, it is a personal memoir. I was a little wary, wondering how self-indulgent it might be. But I was pleasantly surprised. This skilled teacher sprinkles a few personal details across a much bigger canvas of history, institutions (universities, exchanges, various players, regulators). He builds from pretty basic nuts and bolts to deeper understandings of the instruments, the exchanges, the dynamics, etc. I like the story format if it has enough substance, as this does.
It traces very well the innovation process, from the study going in, through assembling the people and other resources, through the implementation. Along the way, we follow a brilliant man's journey and choices, from the "inside out" -- inside the universities, then considering pushing further in academia versus other career alternatives, etc. We have good view of the places, people, and situations where success was incubated. We see his choices at each juncture. So, it is like being mentored by him.
I could see an advanced student drumming his/her fingers. In audio, we can hit a wall with very advanced topics, when we start getting lots of equations, because it is hard to translate that into the format. This book doesn't have that problem. (But hey -- no downloadable supplement for the tables, etc.?) This book works best if the reader already knows a few basics in economics and a little bit of finance, the main parts. It picks up from there. This is a master explainer. This is a great step in my growing knowledge of derivatives, and the big picture in which they happen. I certainly can imagine my way onward from here. I am very grateful to this author.
Late in the book, the author describes it as a "personal memoir". That is what it is. I was drawn to the book by the promise of a cogent statement of the workings and economic and social utility of his "good" derivatives, and hoped for a contrast with "bad" derivatives.
Unfortunately this is not that book, although I am sure the author is eminently qualified to write it. Instead it is a long journey through his life, travels, lunches, and what not. There are innumerable meetings where X is discussed, but seldom a discussion of X.
I finished not really knowing very much that I did not know at the start about the topic of derivatives, while I learned a lot about Richard Sandor and his role in creating the markets he was involved in.
The most revealing moment of the book for me occurred when this multi-decade player at the upper reaches of the financial markets goes to Washington late in the last decade and is astonished by its wealth. I guess that's why the governing class is called "public servants".
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