Word: marketization
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Dates: during 1990-1999
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India also takes note as Washington soft-pedals its criticism when China, another appetizing market for the U.S., continues to sell ballistic-missile equipment to Pakistan, merely slapping Beijing on the wrist. An arms race has been raging in South Asia, and "the U.S. has not made much effort to control it," says Henry Sokolski, the Pentagon's top proliferation expert during the Bush Administration. Clinton's nonproliferation team wisely focuses on reducing the Russian stockpile and keeping loose nukes away from rogue states like Iran, Iraq, North Korea and Libya. The threat of a nuclear breakout in India...
...instant Asia's economies cracked last year, Howard Greenspan feared the worst for his bank. As a longtime customer and investor in the Canadian Imperial Bank of Commerce, the second largest in Canada, Greenspan knew it was a big player in the Asian derivatives market. The bank would suffer from the Asian fallout, but how much? At the company's annual meeting in January, Greenspan, a Toronto management consultant, asked CIBC chairman Al Flood about the bank's derivatives. But Flood cut him off, and a subsequent attempt was unavailing. So Greenspan took CIBC to court a month later...
There are two types of risk associated with derivatives: market risk and credit risk. The former describes the possibility that you've bet the wrong way. These losses are theoretically limitless, another interesting feature of derivatives. The latter risk is simply that the counterparty doesn't honor the agreement...
...that would take a global, systemic collapse--but the possibility for some big hits is real. And although the losses in derivatives last year were small and manageable ($125 million), "these losses tell me that banks are taking on more risks," says Mike Brosnan, director of the treasury and market-risk division for the Office of the Comptroller of the Currency (OCC), an agency that regulates U.S. banks...
...alchemy of derivatives rests on complex mathematical models that predict how markets and derivatives will behave under certain assumptions. The computer models use past market performance to portend the future, but they can't account for the unaccountable: every once in a while an asteroid does strike or countries blow up. These things aren't fully factored in the modeling. Besides, the global economy today is radically different from just five years ago. "Banks have been going out further and further on the risk spectrum, especially the big banks," says Furash. "They are all looking for bigger returns, since they...