| Abstract: | A spectacular financial revolution spanning 20 years created new securities deriving from other securities, which trade in volumes of trillions of dollars in markets, now thought to be the largest and more important in the world. Known as swaps, swaptions, index futures, puttable bonds, collateralized mortgage obligations, stripped bonds, options, and futures, among other exotic names, these financial contracts were designed as a means of laying off risk involving conventional business transactions. This article details massive abuses in the proper use of these insurance products, which resulted in billions of dollars of speculation losses suffered by Procter & Gamble, Gibson Greeting Cards, Orange County California, Metallgesellschaft AG, various‐public employees' retirement funds—and which brought down one of Europe's oldest merchant banks, Barings PLC. © 2001 John Wiley & Sons, Inc. |
