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November 12, 2005

The Coming Disaster in the Derivatives Market
by Michael Panzner

The derivatives genie is now well out of the bottle, and these instruments will almost certainly multiply in variety and number until some event makes their toxicity clear....[They] are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal. -- Warren Buffett, Chairman and Chief Executive, from his Letter to Shareholders, 2002 Berkshire Hathaway annual report

For years, experts had warned about the near certainty of disaster. With its unique geography and hurricane-track locale, New Orleans was a city at risk, and it was only a matter of when, not if, a powerful hurricane would eventually roar ashore and overwhelm the Big Easy.

To be sure, steps were taken beforehand to try and minimize suffering and disruption in the wake of such a catastrophe. Levees were built up and secured. Arrangements were made to cope with the mass evacuation of hundreds of thousands. Federal, state and local emergency preparedness officials drew up myriad plans to mobilize people and supplies.

Nonetheless, when the event many feared finally came to pass in late August 2005, much of those efforts seemed for naught. Instead of organization there was chaos. Instead of action, incompetence. Instead of lives saved, the focus was on what was needlessly lost.

For all the awareness, advance planning, and available resources, the reality was that there was little to show for it when the terrible moment of truth arrived. As a result, it will take a long time for the people of that Gulf Coast region, and for the country as a whole, to fully recover from the disaster known as Hurricane Katrina.

Still, if there was one silver lining to the tragedy, it was the lesson that, as a nation, we needed to be better prepared. Ready, in other words, for the inevitable worst. Indeed, in a September 19, 2005, cover story, "The Next Big One," Business Week noted as much, describing a litany of potential disasters, from earthquakes to pandemics to "dirty-bomb" terrorist attacks, lurking on the horizon.

Curiously though, one threat, a brewing economic hurricane, was not mentioned. That was odd given the magazine's audience and purview. Nonetheless, it was not a complete surprise, because the disaster that already seems to be unfolding is one few people understand or are even aware of, let alone are prepared for. Once full-blown, however, it is likely to wreak havoc not only in the U.S., but around the world.

No doubt this sounds alarmist, but there are experts who would suggest otherwise. Indeed, such estimable giants of the financial world as Warren Buffett, legendary investor and chairman of Berkshire Hathaway, and Bill Gross, founder and principal of Pimco, one of the world's largest fixed-income managers, have raised serious concerns about this growing menace.

In truth, while no one can say for certain when the day of reckoning will arrive, it seems a good bet that if some of those who are in a position to know are worried about the derivatives market and the associated systemic risks, you should be, too.

One of the difficulties people have with understanding this particular disaster-in-the making is its complexity and seeming irrelevance to their day-to-day lives. Unlike an earthquake or a car bomb, a derivatives-inspired financial meltdown won't to lead to leveled buildings or bloodshed, at least initially. Yet, the toxic fallout will likely be as painful, long-lasting, and difficult to overcome as any of the more widely discussed scenarios.

What makes the coming debacle even more difficult to comprehend is that it stems from a long chain of seemingly benign interactions and financial relationships. Indeed, despite the fact that the modern derivatives market has flourished because of big money, complex technology, and highly-paid talent, the culprit when it all goes wrong is likely to be simple: human emotions -- fear and greed -- run amok.

For most people, the term "derivative" has little meaning. In many cases, the mere mention of the word is enough to cause eyes to glaze over. That is partly because these financial instruments are somewhat ethereal. They are, in other words, largely created out of thin air. Practically speaking, they have no value in and of themselves.

They are also hard to understand because, like many intangible concepts that occasionally involve a great deal of theory and calculation, academics have done wonders transforming the complex into the incomprehensible. As is often the case, though, if you break them down into smaller, more digestible parts, they are easier to grasp. That is also true with respect to the derivatives market.

Look closely at how the world works, how people function and otherwise go about their daily business. It is not hard to see that our modern existence is, and is increasingly, about interdependence. We survive because of our ties to each other, whether spiritual, emotional, organizational, geographical, or genetic. We also rely on an extensive network of financial relationships with people and institutions we know, as well as many we don't.

Moreover, all of us operate within a framework of uncertainty. Life is about risks -- taking them, mostly -- and acting on imperfect information. Some may claim to see the future and perhaps one day that may be proved true. For now, most of us can only guess what will happen tomorrow, or next week, or in a year's time.

Because we can never know for sure, we make calculations and compromises. Like deciding whether it is better to have a bird in the hand or two in the bush.

This usually involves agreements of one kind or another. Contracts, obligations, promises, and responsibilities -- whether written or oral, implicit or explicit, they are a means by which we work together with others. To secure what we want or need, now or in the future.

And, hopefully, to protect ourselves in ways that suit us best. Buying insurance, for example, is one way we try to alleviate some of the harmful effects of life's inevitable misfortunes.

Derivatives are, generally speaking, contractual agreements that offer a means for individuals or businesses to restructure or rearrange the risks they may face in future. In many respects, they function like insurance, though with some critical differences, as will be noted later on.

Although they are usually in written form, like most financial commitments, that is not necessarily a prerequisite. Unless, of course, either party wants to be able to trade, exchange, or sell these contracts. In that case, they usually take shape as securities.

In their simplest form, derivatives provide for certain rights or obligations between two parties, or "counterparties." Most important, the way in which these instruments are evaluated almost always takes into account that they are linked to some other security, commodity, event, or any of a wide variety of agreed-upon conditions. In essence, they derive their value -- hence, "derivative" -- from something else.

In some ways, a marriage proposal has elements in common with a derivative. In that case, a couple decides in advance to come together on a certain day and exchange vows. They promise to live together as man and wife and assume a host of obligations and responsibilities. Essentially, they agree now to make a deal later.

Similarly, the purchase of an airplane ticket, or a ticket for a rock concert, could also be viewed as a crude form of a derivative. Money is handed over today in exchange for enabling a service to take place at some future date.

The most appropriate examples, of course, are those securities that have evolved to form the cornerstones of the global derivatives market: futures, forwards, options and swaps. In simple terms, they are contracts where two counterparties agree to undertake, or to possibly undertake, a transaction or transactions at some point in the future, based on conditions established at the outset.

In practical terms, futures and forwards are alike: both create obligations between two parties. The main difference is that the former tend to have standardized terms and trade on recognized exchanges. Typically, there is a designated middleman, or "clearinghouse," which acts as the official counterparty to every transaction. That makes it easier to transfer -- by buying and selling -- commitments between the various market participants.

Probably the most widely known derivatives of this type are the futures contracts that trade at places like the Chicago Board of Trade. The CBOT was originally founded in 1848 as a centralized marketplace to help growers and others protect against the risks and often wild price fluctuations inherent to the agriculture industry.

The classic example of why these contacts exist describes a farmer wishing to lock-in a price for his wheat before the actual harvest. To do this, he might strike a deal with a baker, also keen to fix his costs. Both sides could then take comfort in knowing that no matter what happened to prices in the interim, they would be protected and wouldn't have to worry. Then, on the agreed date, they would make the exchange: crops for cash.

In this arrangement, both sides end up hedging their exposure to the vagaries of the marketplace -- which could be affected by unexpectedly high or low yields, unusual weather, plant diseases, etc. They gain security today at the expense of uncertainty tomorrow. In theory, they have shed at least some of the risks they do not want in exchange for those they do. Net-net, a positive.

The real world, of course, is not so simple, and though the farmer might want to reduce his exposure today, the baker may not have reached that same conclusion yet. What happens then, and what markets and exchanges facilitate, is that other parties -- speculators -- jump into the fray. Often, they are individuals who don't have any inherent interest in agriculture or the products being traded, other than how they can profit from fluctuations in their prices.

So, in this case, the farmer might end up fixing a price for his wheat in, perhaps, three months time, by selling a futures contract on the CBOT, typically through a broker. By doing so, he commits to deliver a set amount of grain, of sufficient quality, to a location determined by the exchange. He receives today's price in return.

In contrast, the buyer of the futures contract, who could be a trader on the exchange floor, makes a different decision. He operates on the premise that, at least temporarily, the farmer is wrong. If the speculator turns out to have bet correctly, he can sell the obligation for a profit later on. Maybe even to the baker, or to another trader, though it doesn't really matter who.

Typically, both sides put up a good faith deposit, or "margin," which represents a small fraction of the face, or "notional" value of the contract. In theory, this is meant to serve as protection against default. However, it also allows both sides to assume a large commitment without having the full value of the contract immediately on hand.

The ebb-and-flow of prices tends to be driven by the interplay between the two groups: those who have a direct involvement in what happens -- the hedgers -- and those who are merely betting on which way prices are headed -- the speculators. As long as the two camps remain somewhat in balance, it serves as a useful mechanism for divvying up risk in an efficient manner.

However, once out of whack, as appears to be the case in the derivatives market, the potential for instability expands dramatically. History suggests the value and relevance of a market ultimately depends on those who actually need it, not those who only seek to profit from it.

Another other popular form of derivative is an option. Options are different from futures and forwards in that one party has a right, rather than a firm commitment, to initiate a transaction at some future date based on the established terms. Typically, the option is granted by the "writer," the one who is obligated if called upon, in exchange for a payment up front.

In a sense, these types of contracts resemble traditional insurance products. The writer of the option is like Allstate, Prudential, GEICO or any other company issuing a life or homeowner's policy, where the holder ends up receiving a predetermined amount if an event takes place (e.g., a fire ravages the property) in exchange for paying a premium or premiums beforehand.

But the terms can vary widely. So can the triggering event and the action that may be taken. A simple example of an option might involve the owner of a parcel of land offering a prospective buyer the right to acquire the property at a fixed price in six months time, for a relatively small payment at the time the deal is struck. This is usually referred to as a "call" option.

In this case, the owner, who is writing the option, is acknowledging that he is willing to sell the property and accept the risk that the market value might rise above the contract or "strike" price and that he can do nothing about it. He also faces the prospect that he may still own the property after the agreement ends. In other words, he might find himself in the same position as when he started, though with some extra income for his troubles.

The option buyer, on the other hand, is essentially locking-in the cost of acquiring the property by making the initial premium payment, thereby reducing the risk resulting from market gyrations while the agreement is in effect. There are many reasons why he might want to make that decision. Perhaps he is hopeful, but unsure, whether he will be able to line up financing to make the purchase.

Or maybe he believes market prices are headed higher, and wishes to have temporary control of the property with a relatively small outlay. In this way, options represent a form of leverage, similar in some respects to the margin on a futures contract, where the holder can potentially receive the upside benefit without having to pay the full cost up front.

Whatever the reason, it is up to the option holder whether he goes ahead and "exercises" the option. Once the premium payment is made, he is generally under no further obligation other than to come up with the money necessary to cover the specified contract price if he wishes to acquire full ownership of the property.

Instead of the underlying asset changing hands, some agreements allow for a payment of the difference between the strike price and the market value, depending on whether it is higher or lower and what rights the holder has. This "cash settlement" feature is also seen in many modern derivatives contracts, especially those involving indexes or "events." Stock index futures are a well known example.

Swaps are another key feature of the derivatives market. In essence, they involve contracts where two sides agree to exchange one or more payments during an established period based on conditions determined at the outset. Widely used in the credit and currency markets, they enable counterparties to transform undesirable risks or comparative advantages in one market into obligations that, theoretically at least, better suit the needs of both.

One example of this type of agreement is an interest-rate swap. That is where, for instance, a company with an existing loan whose rate fluctuates every six months might arrange with, say, a bank, to eliminate that uncertainty. What happens next is that the financial institution, for diversification or other purpose, assumes responsibility for the varying, or floating-rate, payments, while the borrower agrees to cover the amounts tied to a predetermined or fixed rate of interest.

These four categories of derivatives are by no means the end of it. Indeed, it is safe to say that there are myriad variations, a fact which has likely laid the groundwork for the coming unraveling. Regardless, it is worth noting that instruments such as futures, forwards, options and swaps have played an important role in commerce and finance. In fact, individuals and businesses have used a wide variety of risk-transfer methods for hundreds, perhaps thousands, of years, and no doubt society as a whole has benefited.

Without having some way of gauging or laying off their exposure, people might find it impossible, for example, to provide for their loved ones upon death or to protect their homes and businesses from calamities such as fire. It would also be very difficult for companies to evaluate or make sizeable investments in large-scale or long-term ventures. Derivatives can give decision-makers the flexibility to decide which risks to keep -- and which to try and pass on or trade to others.

In this respect, they have proved exceptionally useful. Arguably, they have become integral to the financial lives of almost everyone, though most people are probably unaware of this fact. Apart from their straightforward use by investors looking to reduce risk or profit from potential trading opportunities, various forms of synthetically-created securities have enabled millions to enhance their economic wellbeing and tap into the American dream.

From educating our children to buying a place to live, from the way we manage our credit and finances, from greasing the wheels of global trade to overcoming the dizzying array of risks and uncertainties faced by businesses large and small, derivatives have played a major role.

One way in particular these instruments have helped is by facilitating a process known as "securitization," whereby loans, financial instruments, and other assets are bundled together and sold to investors as a package. This has created tremendous economy-of-scale benefits. It has allowed individuals seeking financing say, for the purchase of a home, to tap into a plethora of funding sources in the U.S. and around the world, helping to lower their interest costs. It has also enabled people to obtain products and services personalized to their needs and risk requirements.

Many have recognized the value of synthetically-created financial instruments. Alan Greenspan, long-time Chairman of the Federal Reserve, noted in 2003 that "The benefits...have far exceeded their costs." He also said that the "growing array of derivatives and the related application of more-sophisticated methods for measuring and managing risks had been key factors underlying the remarkable resilience of the banking system."

Nonetheless, there is a dark side. It is impossible, for instance, to discuss derivatives without noting that these instruments, indirectly or by virtue of their structure (e.g., options), almost invariably employ some element of leverage (i.e., "other people's money"). Indeed, that has likely been a spur to their increased usage among amateur and professional investors (and speculators) alike, especially in recent years.

With difficult conditions in the wake of the post-1990s stock market bubble, historically low interest rates, and intense competition, money managers have increasingly sought to garner more bang for their buck by using high-octane financial instruments such as futures, options and swaps.

This includes hedge funds, a group of operators that has come virtually out of nowhere in the mid-1990s to aggressively oversee more than $1 trillion in capital, often geared up with borrowed funds. With inbuilt incentives to place riskier bets than traditional old-line managers, this crowd has discovered that derivatives have considerable appeal. Rather than shedding risk, they have been adding to it. Indeed, many have taken to these instruments like ducks to water, though not always with eyes wide open.

Aside from that, because modern financial engineering involving synthetically-created securities has, in many respects, made it easy for even the least creditworthy individuals to borrow money for all sorts of purposes, derivatives have undoubtedly contributed to the breathtaking, but ultimately very risky, expansion of credit that has occurred during the past few decades.

Taken together, the combination of increased leverage and heightened risk-taking has served to stir up a potentially volatile miasma around derivatives, especially the newer, more complex varieties. That makes them exceptionally dangerous if not handled properly.

Conceptually, it is not hard to grasp the basic economics of a garden-variety derivative such as a futures contract. If the market price of wheat goes up between the time a deal is struck and the expiration of the agreement, the buyer wins and the seller loses. That is what is known as a zero-sum game. Nonetheless, whatever a farmer, to use the earlier example, might give up as a result of hedging his output is offset by the reduced uncertainty.

But it is an altogether different story when it comes to analyzing options, or a portfolio of derivatives, especially those with lots of complicated bells and whistles. In most cases, valuation and risk assessment depend on mathematical formulas and computerized models, with many inputs derived from estimates and past data. That is all well and good if the tools are perfect and the history is complete.

Unfortunately, there is little evidence that this is the case. In truth, many experts believe the derivatives market rests on a number of very precarious assumptions that have yet to be tested.

And even then, the history of the derivatives market is replete with high-profile disasters. These include the 1994 bankruptcy of Orange County, one of California's richest, due to naïve investments in exotic derivatives; the 1995 failure of the 200-year old Barings Bank as a result of unauthorized futures and options trading by a rogue employee; the 1998 collapse of hedge fund Long Term Capital Management on the heels of ultra-leveraged bets gone wrong; and, the ongoing implosion at Fannie Mae, the nation's largest mortgage lender, because of derivative, accounting and other irregularities.

Up until now, none of these derivative-related hurricanes has breached the high-water levees of the U.S. and global financial systems. But as was the case with earlier, less destructive storms in the American Gulf Coast region, rather than decreasing the odds of a disaster, the relative calm of the past seemed to have inspired a false sense of security.

Indeed, the fact that New Orleans had long been spared despite the inevitable and persistent threat made for considerable complacency. As did the availability of government-sponsored flood insurance and a belief that authorities would step in and save the day if need be. Instead of getting prepared for the worst, people did virtually the opposite: they boosted development in flood-prone areas without thinking twice about it.

Likewise, many view the lack of widespread economic upheaval following earlier derivative blow-ups as a reason to be unconcerned about the current state of the financial system. The seemingly unprecedented intervention of the Federal Reserve Bank of New York in the wake of the LTCM collapse, as well as central bank "accommodation" after the 1987 stock market crash, have also inspired confidence that authorities will not let things get too far out of hand if and when disaster strikes.

Unfortunately, this sense of moral hazard has almost certainly increased the risk and destructive potential of a catastrophic meltdown in the derivatives market.

The reality is, when people erect a raft of new buildings in vulnerable locales, it generally doesn't increase the odds that a hurricane will strike. That is not the case with respect to risky behavior in the synthetic securities market, however.

When big operators take on a lot more risk than they otherwise might -- they drive faster, perhaps, because they know their car has anti-lock brakes -- it tends to raise the danger stakes for the system as a whole. Millions of dollars of losses can break the bank at a few unlucky firms. Billion -- or even trillion -- dollar failures can bring down the whole house of cards, especially given the dense network of dependent relationships that exists in the global financial arena. As well as the key role that finance-related activities now play in today's service-oriented economy.

In addition, while an earthquake in a major city would likely cause severe damage and untold loss of lives, it would not necessarily lead to aftershocks 3,000 miles away. In the modern world, however, the "counterparty risk" factor seems to be zooming off the charts. What that means is that a potentially unstoppable domino effect, a "cascade of ruin," could be set in motion if a global bank or "bulge bracket" Wall Street firm ends up with the derivative short straw.

That potential ripple effect has as much to do with the concentration of exposure at large players such as banks and Wall Street derivatives powerhouses as it has to do with the abundance of overlapping ties to specific developments or changes in asset prices. Many credit-related derivatives, for example, either shadow or are directly linked to indexes that include the debt of certain large borrowers. The fact that the scale of the exposure is obscured by the market's lack of transparency adds to the potential for a sudden and unexpectedly sharp turn for the worse.

Another point the disaster in New Orleans made clear was that having plans in place to deal with a long-predicted event doesn't necessarily mean success is assured. One of the biggest holes in the emergency response effort following Hurricane Katrina was the chaos that resulted from poor communications and overlapping jurisdictional responsibilities. Essentially, one hand -- of government -- did not know what the other was doing, and no one was fully in charge, at least in the beginning.

In the modern global financial system, where many participants are either unregulated or are monitored by a patchwork of country or sector-specific regulatory overseers, chances are that a derivatives-related catastrophe will see a similar lack of coordination that will produce a far more devastating outcome than if it was a purely domestic affair.

It is one thing for a central banker to summon the heads of various financial firms into a room to sort out the mess at hedge fund LTCM, as the New York Federal Reserve chief reportedly did in 1998. Despite the fact that the Fed had limited statutory authority in the matter, it is not hard to see why none of those who were asked to attend turned down the "invitation."

However, if a derivatives time-bomb is set off by the failure of a large London-based hedge fund, will a banker in the Cayman Islands, an investor in Japan, an insurer in Germany, and a regulator in France feel similarly inclined to respond, or even to take the lead? That is assuming, of course, that those affected even understand what is going on or why it may be relevant to their own interests. Overall, there appears to be little, if any strategy in place for dealing with cross-border financial upheaval.

What will likely make matters worse is the fact that the derivatives market has become mind-numbingly complex and remains extremely opaque. Few individuals, let alone regulators, have a solid handle on the aggregate picture, especially globally. And while there is a great deal of activity that is transparent, such as the trading that takes place on recognized venues like the CBOT or Chicago Mercantile Exchange, the vast majority of deals are private, "over-the-counter" transactions that go unreported.

Adding further fuel to the fire has been the liberalization and globalization of financial markets. Because of competitive pressures and the ease with which capital flows between firms, markets and countries, activities that used to be limited to large firms in highly regulated sectors (e.g., banks) are being taken on board by all and sundry. Often in locations where standards are low or oversight is lax.

Hedge funds, insurers, corporate treasuries, the finance arms of industrial companies, and other non-traditional players are increasingly involved in the derivatives market. For the most part, they have less stringent capital requirements and less of a history managing complicated financial risks and broad credit exposure through several cycles of economic activity than banks do.

In sum, there are more inexperienced players taking part, more firms with diverse -- and occasionally inadequate -- capabilities linked to each other, and a maze of overlapping and often competing jurisdictions. This suggests that a simple solution, or even a consensus, will be almost impossible to find if and when the worst-case scenario does come to pass.

Scarier still, it is likely the disease that typically goes hand-in-hand with disasters of the money kind will be transmitted around the world at light speed because of modern technology and advanced communications networks. The far-reaching epidemic that people don't usually like to discuss in mixed company, let alone acknowledge, when the worst unexpectedly happens: panic and contagion. Throughout history, they have been a recurring feature of convulsing markets and dramatic financial crises.

When people are calm and otherwise thinking clearly, they tend, more often than not, to act rationally. However, when problems arise and even the most sophisticated players become terrified of losing their jobs or their shirts, or they are overwhelmed by the sheer scale of potential risks they are confronted with, they frequently experience a primal fight-or-flight response. Or even temporary paralysis -- like the proverbial deer in the headlights.

During many of history's broad-scale financial upheavals, such as the period surrounding the 1987 stock market crash and the collapse of Long Term Capital Management, markets became momentarily transformed. Traders stopped buying and selling and even answering phones. Money managers froze or reacted in knee-jerk fashion. Bankers called in loans. And regulators, for the most part, stood back and watched. All the while, many of those who were most heavily exposed were forced to liquidate positions at fire-sale prices.

At those points, fear had taken over -- the kind that says "run" when someone shouts "fire" in a crowded theater.

And, perhaps, the kind that had people shooting and looting, or wandering aimlessly, or cowering in stifling attics above flooded rooms, when essential services failed and the lights went out in New Orleans in the aftermath of Hurricane Katrina.

Once troops and emergency responders moved in, and people in the surrounding regions and elsewhere rallied round, rationality and order returned to that Gulf Coast city. And in the weeks that followed, many of those affected did figure out at least some way to start picking up the pieces and start living again.

We weathered earlier storms in our financial system, too, though no doubt the cost has often been considerable. The risk this time, however, is that conditions are, and will be, more complicated and dangerous than before. While New Orleans was a relatively self-contained locale, whose citizens and government officials could potentially reach outside the area for assistance, a firestorm set in motion by a derivatives debacle is unlikely to leave many parts of the global financial system unscathed.

It doesn't help that there are unsustainable imbalances in the global economy, either. America faces record trade and budget deficits. Many economically advanced countries around the world have aging populations and underfunded pension systems. Real estate seems to have taken the bubble baton from the stock market, though there are signs that the top is already in. And the world is awash in debt and a vast sea of open-ended obligations and contingent liabilities.

Moreover, if history is any guide, the period of monetary tightening that began in June 2004 will likely blow the cover off at least some shaky operations that had been kept alive by cheap money in the wake of the post-1990s new-era collapse. Odds are, in fact, that one of those will be the match that lights the fuse that ultimately triggers widespread financial turmoil.

Already there are rumbling in the financial world, akin to the small tremors that shake the ground ahead of a massive earthquake. In the spring of 2005, several large hedge funds reportedly lost billions of dollars on complicated credit bets gone wrong. One firm even admitted that it had made a substantial "miscalculation" -- which they only realized, of course, after the fact. Given the increasingly complex nature of the derivatives market, that refrain is likely to be heard over and over again in future.

Certainly, the U.S. and global economies have been remarkably resilient, especially in recent years, and it may be a mistake to bet on the downside. What's more, there are those who would argue that the financial markets have attracted the best and the brightest, and a gut-wrenching, blood-letting debacle is in no one's interest. Unfortunately, the odds seem stacked against a happy ending, and the cyclical nature of financial crises suggests it is definitely the wrong time to be thinking like a Pollyanna.

Unfortunately, the reality is, if it all goes horribly wrong, it will not only be Wall Street that suffers. Main Street will, too. In the worst case, brokerage firms and banks will shut their doors. Markets will plunge and many investors will lose everything, Interest rates will shoot sharply higher, taxes will rise, and parts of the economy will grind to a halt, at least temporarily. Those seeking a mortgage, a college education, a job, or even day-to-day sustenance may find themselves left wanting.

At a time when many have abandoned prudence in search of profits, and where those who are knowledgeable about the disaster-to-come in the derivatives market are seeking to protect themselves, it is the timeless wisdom that remains true: forewarned is forearmed.

Michael J. Panzner
financialarmageddon.com

Michael J. Panzner is a 25-year veteran of the global stock, bond, and currency markets and the author of Financial Armageddon: Protecting Your Future from Four Impending Catastrophes, published by Kaplan Publishing.

Copyright © 2005-2007 Michael J. Panzner

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