Summary of In Defense of Derivatives

From Beer to the Financial Crisis

Cato Institute,

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In Defense of Derivatives summary
In the long run, rules constraining the use of derivatives are likely to do more harm than good.

Rating

8 Overall

8 Importance

7 Innovation

8 Style

Recommendation

Derivatives have borne the brunt of blame for the 2008 financial crisis. However, painting derivatives with one broad brush is highly misleading and patently incorrect, according to finance professor Bruce Tuckman. He posits that government-devised rules to avoid another crisis fail to address the true causes of the collapse and may discourage the use of all derivatives, which help businesses manage risk. getAbstract recommends this comprehensive overview of derivatives to regulators, executives, investors and others with an interest in minimizing risks to the financial system.

In this summary, you will learn

  • How businesses appropriately use derivatives
  • Why derivatives were not responsible for the 2008 financial crisis
  • How regulators might better focus their efforts to reduce risks to the financial system
 

Summary

Derivatives are essential to modern business, but they’ve come under regulatory fire since the 2008 financial crisis. A derivative is a contractual agreement between two parties “to exchange cash, goods or securities in the future.” Because it calls for little or no payment or margin upfront, a derivative...
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About the Author

Bruce Tuckman is a finance professor at New York University Stern School of Business.


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