Financial Times FT.com

How to design derivatives that dazzle and obfuscate

By Satyajit Das

Published: July 8 2009 03:00 | Last updated: July 8 2009 03:00

US and European Union proposals for over-the-counter derivative regulations are consistent with H.L. Mencken's proposition that "there is always a well-known solution to every human problem - neat, plausible and wrong".

Industry lobbyists focus on the use of derivatives to hedge and manage risk, promoting investment and capital formation. While derivatives can play this role, they are used extensively for speculation - "manufacturing" risk and "creating" leverage.

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