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Dr. Richard Sandor

lines on the record: 44
first: 2022-09-08
most recent: 2022-09-08
sittings or episodes: 1
sources: podcast

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“Government, but government doesn't necessarily mean the federal government. The open interest, that is a measure of the breadth of markets is for environmental commodities bigger than gold or approximately the size. So we now have a regional markets in the Northeast and California renewable energy, all of which are almost the size of the gold market and no federal government involvement. Your questions have been fantastic. You are informed and do your homework and it's a pleasure. And anything I can do to help you as kind of in the same way, except you were doing it through podcasts. So I'm glad to support any effort. And please feel free to contact me. And if our schedules permit, we'll look forward to seeing you again”
2022-09-08 · Forward Guidance · The Eurodollar Market Is “Dead,” Says Godfather of Financial Derivatives | Dr. Richard Sandor · IDENTIFIED FROM THE TRANSCRIPT
“No, I wouldn't, and I'm on the wrong side of, and the very concept that we had with the Chicago climate exchange, I heard the same argument. Without the U.S. government, you'll never get this off the ground. We ultimately got 108 companies, Ford Motor Company, Intel, IBM, American Electric Power, a huge concentration of emitters with no government totally voluntary. We had states like New Mexico join, we had cities like Chicago join, we had every single sector with the exception of some of them. So I think voluntary can work without the government over the long term. You do need.”
2022-09-08 · Forward Guidance · The Eurodollar Market Is “Dead,” Says Godfather of Financial Derivatives | Dr. Richard Sandor · IDENTIFIED FROM THE TRANSCRIPT
“Did that and said, This is inevitable to me as interest rate volatility. If you look at carbon concentration, it was going up and up and up. Pay attention to the scientists, this is going to become an existential problem for humanity and go and develop it. So we securitize the Costa Rican rainforest, went to a panel with the vice president and went to Kyoto and pushed on that, joined a few a Swiss mutual fund board, helped to develop the first sustainable stock index. We sold it to Dow Jones. It's now called the Dow Jones Sustainability Index, formed an exchange, sold it, etc. So the hypothesis is Is that air and water are finite? And that ultimately they had to be rationed the same way money had to be rationed. And if it was good enough to support food, then it could be extended to air and now it can and should be extended to water.”
2022-09-08 · Forward Guidance · The Eurodollar Market Is “Dead,” Says Godfather of Financial Derivatives | Dr. Richard Sandor · IDENTIFIED FROM THE TRANSCRIPT
“I got involved in 1990, about 33 years ago, and for the same reason with financial futures. I looked at, I spoke to some scientists, I got approached by some folks in the Lyme industry and they were going to interested in because acid rain was a big problem and they said, you commoditize interest rates could you commoditize air? And I said, sure, it's the same issue. And they said, what? And I said, yeah, the trading is a good idea. My mentor and friend, Ronald Coase foresaw that. And yes, and so I worked on the development of the Clean Air Act of 1990. In 1991, the United Nations got a hold of me and said, we're holding a conference. And would you prepare a paper to discuss the feasibility of a carbon futures market? I spoke to scientists.”
2022-09-08 · Forward Guidance · The Eurodollar Market Is “Dead,” Says Godfather of Financial Derivatives | Dr. Richard Sandor · IDENTIFIED FROM THE TRANSCRIPT
“So let me kind of set the stage for you, and I'm happy to talk about it at another time, or if you find that people are interested, we can do another show, Jack. I'd like that very much.”
2022-09-08 · Forward Guidance · The Eurodollar Market Is “Dead,” Says Godfather of Financial Derivatives | Dr. Richard Sandor · IDENTIFIED FROM THE TRANSCRIPT
“Average That's expected and the Fed fund's average is going to be higher than the risk free rate and that also makes sense.”
2022-09-08 · Forward Guidance · The Eurodollar Market Is “Dead,” Says Godfather of Financial Derivatives | Dr. Richard Sandor · IDENTIFIED FROM THE TRANSCRIPT
“So the sulfur rate is risk free, so you would expect that a private rate which reflects the cost of borrowing to be higher than a risk free rate. So it's actually what we expect. More than that, the credit sensitivity or the risk for a very large bank, like a money center bank versus a small bank in Arkansas, you'd expect to be very, very different. And so it is behaving as one would expect. And so the smaller banks, the regions and whatnot will have a higher rate. And we typically trade in the top quartile or the top one percent of FET funds because I think we reflect the real marginal cost of borrowing for regulated depository institution, but you would expect that that firm that needs liquidity is going to be very different than JP Morgan's cost of funds. Right. The smaller banks will have to borrow at a higher rate than the Fed funds.”
2022-09-08 · Forward Guidance · The Eurodollar Market Is “Dead,” Says Godfather of Financial Derivatives | Dr. Richard Sandor · IDENTIFIED FROM THE TRANSCRIPT
“So we can go back down to zero tomorrow. Or you could go be back to, you know, five, six percent tomorrow. I think it's very hard to judge and to put parameters on a forecast. All the more reason to have a hedging mechanism.”
2022-09-08 · Forward Guidance · The Eurodollar Market Is “Dead,” Says Godfather of Financial Derivatives | Dr. Richard Sandor · IDENTIFIED FROM THE TRANSCRIPT
“It is the same, but the actual basis point spreads are much larger. So in a world where you have zero interest rates and a belief that the Fed will bail out everything that walks or talks, there is no difference, you know, because it's not a normal environment. I, in my career, Have lived through everything that was a one in a hundred year event except it occurs every 10 years. So the one in a hundred year event was COVID-19. And then the other one before that was 2007 and 2008. That was a one in a hundred year. And then 9-11 was a one in a hundred year event. Then the tech stock drop was one in a hundred years and Volcker was one in a hundred years. The 87 crash was. So every decade or seven to ten years we experience a one in a thousand year event. So I don't believe any of them are one in a thousand years anymore.”
2022-09-08 · Forward Guidance · The Eurodollar Market Is “Dead,” Says Godfather of Financial Derivatives | Dr. Richard Sandor · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, no, I agree with you totally. When interest rates is zero and you add $5 trillion in liquidity to the system, if the risk-free rate is 10 and the credit sensitive rate is eleven, it doesn't mean anything because they're all so close to zero. If that same, so if it's 10 basis points for the risk-free rate and 12 basis points for the risk rate, it's an imperceptible difference. It is 20%. So if interest rates are five percent, the same twenty percent spread would say that the credit sensitive rate is six percent twenty percent of five percent, right? So as a percentage.”
2022-09-08 · Forward Guidance · The Eurodollar Market Is “Dead,” Says Godfather of Financial Derivatives | Dr. Richard Sandor · IDENTIFIED FROM THE TRANSCRIPT
“Okay, there is no interest rate per se, just like you might have a different multiple for Apple than you would for general motors. And because they're both stocks, it would be not the wise way to look at it to assume that they will behave the same in a recession. Because they're both stocks”
2022-09-08 · Forward Guidance · The Eurodollar Market Is “Dead,” Says Godfather of Financial Derivatives | Dr. Richard Sandor · IDENTIFIED FROM THE TRANSCRIPT
“Low grade corporates, so there are a whole family of rates depending on the credit sensitivity of the borrower, to put it in your terms. So you, Jack, might be a very highly qualified borrower, and you would get a better rate than me who may not be as qualified. And banks will discriminate on interest rates based on their perception of the borrower's ability to repay and clearly a regional bank Or a small bank, a community bank will find it harder to borrow than When times are tough, and therefore they will also To their customers, charge a higher rate because of a recession, thinking there's a higher probability of default. So it is a misnomer, but it's a convenient misnomer to talk about an interest rate.”
2022-09-08 · Forward Guidance · The Eurodollar Market Is “Dead,” Says Godfather of Financial Derivatives | Dr. Richard Sandor · IDENTIFIED FROM THE TRANSCRIPT
“Well, they would, Jack, there was something years ago called the TED spread, which was the relationship between Treasury bills and euro dollars. And it reflected that during times of stress, credit sensitive interest rates, that is where the counterparty could default, will go up more than risk-free interest rates. And so during a time of recession, the same way for your listeners that look at junk bonds versus government or AAA versus governments or triple B versus governments, the fixed income markets have credit spreads built in depending if it's risk free, its high grade corporate.”
2022-09-08 · Forward Guidance · The Eurodollar Market Is “Dead,” Says Godfather of Financial Derivatives | Dr. Richard Sandor · IDENTIFIED FROM THE TRANSCRIPT
“Is appropriate and our hypothesis is that choice is what's critical in the use of an interest rate benchmark the same way that some people may index to the S&P, some people to NASDAQ, some people to the Dow Jones that there is and should be a choice of benchmarks to reflect the nature of the institution and in the same way that you have three kinds of wheat, you have a hard red, a soft red, and a spring, you have different benchmarks. And we think that people may and will likely choose a combination depending on their own. Wrist profile. So the only thing we advocate is choice. That economists don't know anything about markets. There's only one thing they all agree on, and that is diversification is good.”
2022-09-08 · Forward Guidance · The Eurodollar Market Is “Dead,” Says Godfather of Financial Derivatives | Dr. Richard Sandor · IDENTIFIED FROM THE TRANSCRIPT
“It's got an overnight rate, which is simply the banks, and it's targeted to regional mid-sized community and minority depository institutions. And it is an overnight rate among that class of players. So everybody but systemically important financial institutions. So we are a credit sensitive interest rate. That is created by real transactions overnight. We also have a term rate in which we use not only what is transacted on our platform but other data for all banks in the short term market to generate a thirty and a 90 day rate. Our premise has been, Jack, that choice is critical, that for some people borrowing and lending at a credit sensitive rate reflects their cost of funds, for example for big banks or sulfur may be appropriate. For us for people who are borrowing and have credit sensitivity not risk free, a mirror bore is”
2022-09-08 · Forward Guidance · The Eurodollar Market Is “Dead,” Says Godfather of Financial Derivatives | Dr. Richard Sandor · IDENTIFIED FROM THE TRANSCRIPT
“You are 100% correct and right on the mark. They did trade and trading LIBOR-based debts still exists. Everything will go away in June 23 by law based on the reconciliation act that the president signed in March. So, everything legally will have to go away by June 23. So, important for your listeners to understand, be cautious here. We've just decided that there's going to be euthanasia in June 2023. The corpse will be officially cremated and that won't even exist anymore for outstanding debt.”
2022-09-08 · Forward Guidance · The Eurodollar Market Is “Dead,” Says Godfather of Financial Derivatives | Dr. Richard Sandor · IDENTIFIED FROM THE TRANSCRIPT
“Well, it is not only archaic. You are legally not supposed to use it. So, you know, the very fact that you are fighting the will of the Fed and the Congress Just doesn't make much sense. So, I think what we've learned is I don't know of anybody who is using euro dollars or LIBOR to originate any new. Loans or debt. The only thing that's left is the outstanding that were issued years ago and not any new issuance. So it's important for your listeners and viewers to understand that whatever is traded is a legacy, but there is no new use of LIBOR as a benchmark in the UK or in the US and the only treatment is the legacy. And by June of 2023, even that will be migrated to another benchmark. Right. So that's why I'm emphatic because”
2022-09-08 · Forward Guidance · The Eurodollar Market Is “Dead,” Says Godfather of Financial Derivatives | Dr. Richard Sandor · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, it's true for the futures, but it's not based on an underlying viable cash market. It's a fiction, you know, and the fiction. Because the need to hedge was so great. And the market grew at a time where there were significant underlying transactions and it just got out of hand. I mean, again, we're sitting here, Jack, talking about a funeral. So why are we talking about something that's dead, been discredited? Every central bank in the world thinks it's worthless. Why are we discussing this now? The amount of ink that is printed about somebody who's been dead and buried for the last decade and had been totally discredited, your viewers should understand it is talking about something like the world without a car.”
2022-09-08 · Forward Guidance · The Eurodollar Market Is “Dead,” Says Godfather of Financial Derivatives | Dr. Richard Sandor · IDENTIFIED FROM THE TRANSCRIPT
“That it will be in the self interest of certain people not to intentionally misbehave, but the incentives were so great and the cash market was so small that it was inevitable in my humble opinion. And again, like with treasury bonds and things like that, people said, no, LIBOR is never going away. You go back to Chicago, you're wrong, you don't understand, LIBOR is the benchmark for the world. And again, I felt good about it because nobody seemed to believe it was going to happen. So as an inventor, you have to be a contrarian. And I said it's phenomenal to me. And I got on a plane and I said, okay, let's develop an American interest rate. How much sense does it make for a mortgage in Arkansas to be priced on a London rate between thirty banks? It just doesn't. But price in dollars.”
2022-09-08 · Forward Guidance · The Eurodollar Market Is “Dead,” Says Godfather of Financial Derivatives | Dr. Richard Sandor · IDENTIFIED FROM THE TRANSCRIPT
“I think it started out because it filled a good need and then the futures market and the volume you had too little underlying transactions to support a two hundred trillion dollars hedging market there were more people trading the derivatives than anything like the underlying market and you couldn't take very few transactions and base a whole financial pyramid on it. It became evident to me in twenty twelve I took a look around and I said this is not going to work. Ultimately the emperor has no clothes. We can't have six transactions supporting ten trillion dollars. It is obvious.”
2022-09-08 · Forward Guidance · The Eurodollar Market Is “Dead,” Says Godfather of Financial Derivatives | Dr. Richard Sandor · IDENTIFIED FROM THE TRANSCRIPT
“Well, I think the most important thing to tell you is it's dead because it was manipulated. So I don't think there's much time that I can productively add banks had manipulated it. There were billions of dollars of fines, and it wasn't based on real transactions. It was hypothetical. And ultimately, the Bank of England, the US Fed, everybody said there had to be a replacement because it wasn't a real market.”
2022-09-08 · Forward Guidance · The Eurodollar Market Is “Dead,” Says Godfather of Financial Derivatives | Dr. Richard Sandor · IDENTIFIED FROM THE TRANSCRIPT
“To save the nation, you know, and you had to do it. It was very controversial. His predecessor, G. William Miller, did the opposite. He put the ease dramatically and brought on the Carter inflation. And he was replaced by Volcker. And Volcker recognized that you had to do that. So, you know, that brought about a lot of financial innovation, the development of the interest rate swap, Treasury Bill Futures started, but they were dying out for a complex set of reasons. They were ultimately replaced by Eurodollars, which was a great innovation.”
2022-09-08 · Forward Guidance · The Eurodollar Market Is “Dead,” Says Godfather of Financial Derivatives | Dr. Richard Sandor · IDENTIFIED FROM THE TRANSCRIPT
“Well, the inflation preceded the Fed action, right? So it wasn't like Volcker all of a sudden woke up and decided he would raise interest rates. It was a response by an intelligent central banker to a problem which I think and history would suggest brings down civilizations we know from the Weimar Republic we know from the ancient Holy Roman Empire it's the killer beast okay and so Paul Voker's response was appropriate and daring because you really had to and this is a familiar setting you really had to slam the brakes on”
2022-09-08 · Forward Guidance · The Eurodollar Market Is “Dead,” Says Godfather of Financial Derivatives | Dr. Richard Sandor · IDENTIFIED FROM THE TRANSCRIPT
“That structural change creates the demand for a new hedging mechanism, and that's how it's born. Two crises. Volatility, the need to transfer that risk. And it doesn't matter if you look at the pattern. It takes 20 years and that triggers it. And most importantly, you had to develop a regulatory world that facilitated the introduction of new commodities, whether it's here or London or China, it doesn't matter. Same patterns repeated itself for the last fifty years.”
2022-09-08 · Forward Guidance · The Eurodollar Market Is “Dead,” Says Godfather of Financial Derivatives | Dr. Richard Sandor · IDENTIFIED FROM THE TRANSCRIPT
“Who put the pedal to the floor under Carter and drove inflation up. So two events seventy three and seventy nine. Same thing happened with energy. There were no energy futures in seventy three, okay. First was, and they didn't start and not crude oil, it started with heating oil. And again, it was outsiders who were not part of the establishment. And that happened. So we always look for two crises. And even the same thing with the stock index futures. Remember, there was a bear market or for your listeners in the 70s, people only looked at alpha. Nobody is paying attention to us. We better create a delta based on how we outperform because we've been so wrong in the 70s by buying stock. So indexing was born as a result of that. The result of that indexing. Was again a future, so there's a structural change.”
2022-09-08 · Forward Guidance · The Eurodollar Market Is “Dead,” Says Godfather of Financial Derivatives | Dr. Richard Sandor · IDENTIFIED FROM THE TRANSCRIPT
“Puts on bonds, and there were people who bought bonds against puts, they were called standbys in the SNL industry, so there emerged a long buyer and a short seller, and ultimately that worked. Very important to recognize, make a very important, it takes two crises to create a market, in my experience. The first crisis alerts people as a problem and the second crisis is it ratifies that they better do something, otherwise they're competitors will. So the first crisis was 73 with the inflation and under Nixon. And the second came in 79 with the second oil embargo. And the head of the FAG William Miller,”
2022-09-08 · Forward Guidance · The Eurodollar Market Is “Dead,” Says Godfather of Financial Derivatives | Dr. Richard Sandor · IDENTIFIED FROM THE TRANSCRIPT
“Public that can either trade from the long side or liquidity from Providers, and we sold and created special purpose memberships then which was very radical, which were permits to develop a professional liquidity provider. So it's hard for everybody to understand. I mean, it's on a trading floor, people shouting, problems this way, buy, palms that way, sell to bid for a million, two bid for a million. You know, we had all kinds of things that are hard to imagine in the pre-computer age. And it was clear that you just needed to fill that gap. And we filled that gap by educating all of the potential longs. And there became a natural market. People were selling.”
2022-09-08 · Forward Guidance · The Eurodollar Market Is “Dead,” Says Godfather of Financial Derivatives | Dr. Richard Sandor · IDENTIFIED FROM THE TRANSCRIPT
“Jackie, it's a really important question. So everything I've worked on in the last 50 years, the same criticism comes up which you articulated very well. There's only one sided demand. So when you hear that, that's a very good sign that you're on the right thing. The second thing is generally opposed because vested interests don't like price transparency. Okay, so you're normally have two or three major arguments. Number one We don't need it. Number two, you'll never find the opposite side of the market and everybody here wants to hedge. But what people didn't understand was That you have natural hedgers on the cell side. You have natural hedgers on the long side, and the only thing you have to really fill is the differential, the delta between the short hedgers and the long hedgers. And if you have a well-educated speculative”
2022-09-08 · Forward Guidance · The Eurodollar Market Is “Dead,” Says Godfather of Financial Derivatives | Dr. Richard Sandor · IDENTIFIED FROM THE TRANSCRIPT
“Subsequently got contacted by the people in London, worked on that, then worked on France, and most recently a couple of years ago worked in developing the first Chinese interest rate futures and advised the people in Shanghai.”
2022-09-08 · Forward Guidance · The Eurodollar Market Is “Dead,” Says Godfather of Financial Derivatives | Dr. Richard Sandor · IDENTIFIED FROM THE TRANSCRIPT
“On futures which had been banned, they were called privileges in the 20s and that people said it's leverage on leverage is a bad idea got the same reception and I got with the Jinny May's treasuries in 10 year. This is not a good idea and the way you've designed it, it's destined to fail. Etc. And that was essentially all of those have lived for forty five years coming up on the fiftieth anniversary and it was the birth of the CFTC, the redefinition of a commodity, the recognition that interest rates would be volatile and that the World War II experience from 45 to 70 was the anomaly. And that basically we thought that government deficits and political issues and challenges would remain a permanent part of the U.S. landscape.”
2022-09-08 · Forward Guidance · The Eurodollar Market Is “Dead,” Says Godfather of Financial Derivatives | Dr. Richard Sandor · IDENTIFIED FROM THE TRANSCRIPT
“In the short hands, in order to develop liquidity, so the short could choose which coupon, what time of the month, what time of the day, and it was filled with lots of options. And if you understand the Treasury contract, you really can understand what finance is, present value, alternative, yield maintenance, you know, whatever you might need to know. So I'm privileged to be here with you today on the 45th anniversary of the oldest and longest surviving futures contract, and that is the Longbond Futures. I got involved five years later under some controversy again in saying See the ten year become the major financing effort I was then put in charge of, I was elected to the board of directors of the exchange. I became a member. I had resigned. And so I worked on and developed a 10-year future. And another big controversy was options.”
2022-09-08 · Forward Guidance · The Eurodollar Market Is “Dead,” Says Godfather of Financial Derivatives | Dr. Richard Sandor · IDENTIFIED FROM THE TRANSCRIPT
“Treasury bond futures. The government doesn't have much debt outstanding, but I think the world is going to change. There's actually going to be long bonds issued. And I think the total outstanding debt was like $18 billion as more quadruple amounts issued a month. So it was very important to design a mechanism that we had supply and thus we had cheapest deliver and all of the complex technical issues what minimized the possibility of manipulation and to create optionality.”
2022-09-08 · Forward Guidance · The Eurodollar Market Is “Dead,” Says Godfather of Financial Derivatives | Dr. Richard Sandor · IDENTIFIED FROM THE TRANSCRIPT
“Eliminated the regulatory impediment. It was clear that now you could trade anything intangible. And then at that time, I extended my sabbatical and the first interest rate futures was in 75. This was quickly followed by the government starting to issue long bonds. Your listeners will appreciate it. It was 2007, and the government that launched, I think it was a seven and five AC of 07, which was nicknamed the James Bond. Okay, it was the 007s. And I went to Les Rosenthal, who was at a member of the board. I said, let's expand this and try.”
2022-09-08 · Forward Guidance · The Eurodollar Market Is “Dead,” Says Godfather of Financial Derivatives | Dr. Richard Sandor · IDENTIFIED FROM THE TRANSCRIPT
“I said to the folks of my president, hey, don't look at this regulation as unfriendly. This is something we should support because we can get a new definition of a commodity. We can simply assert into the language that anything tangible or intangible would be subject to the new agency. And then the second key thing was I had developed a relationship with Senator Herman Talmudge and a guy by the name of Mike McLeod. And the other issue was to get exclusive jurisdiction. We lobbied for the bill. It was passed. And now you had a demand because of volatile interest rates and you basically had”
2022-09-08 · Forward Guidance · The Eurodollar Market Is “Dead,” Says Godfather of Financial Derivatives | Dr. Richard Sandor · IDENTIFIED FROM THE TRANSCRIPT
“Most people prior to that said go back to Chicago, young man, or go back to the Berkeley campus. There's no need to hedge interest rates because they're not volatile. So I went back to Chicago. The people in Chicago were very open to new ideas and new products. It was a fertile community. So this stage was set. However, a mortgage wasn't part of the commodity exchange authority of listed commodities. In 73, the United States Senate started looking at inflation and food prices and decided that the futures industry had to be regulated. As the chief economist for the exchange,”
2022-09-08 · Forward Guidance · The Eurodollar Market Is “Dead,” Says Godfather of Financial Derivatives | Dr. Richard Sandor · IDENTIFIED FROM THE TRANSCRIPT
“Was to find a financial commodity that people needed to hedge. Jinny Mays were the first natural one because they were originated by mortgage bankers sold to Wall Street and then sold to investors. So they had the characteristics that made it look like wheat. And interest rates started to become volatile in seventy three when we had the Arab oil embargo you had droughts in China and Russia. You had very similar conditions than you have now ballooning deficits, inflation rearing its head.”
2022-09-08 · Forward Guidance · The Eurodollar Market Is “Dead,” Says Godfather of Financial Derivatives | Dr. Richard Sandor · IDENTIFIED FROM THE TRANSCRIPT
“That's the beauty of all of these tools. So in 72, when I joined the exchange, there were only agricultural commodities, essentially. There was no energy complex. There was no interest rate contracts. There was no any options. None of those products existed for a variety of reasons. Number one, the prices were quiescent and there wasn't a lot of volatility. And number two, nobody in the financial industry had a technical ability to trade a financial commodity because of the laws. The laws were not clear and unambiguous. So the first thing that you needed to do”
2022-09-08 · Forward Guidance · The Eurodollar Market Is “Dead,” Says Godfather of Financial Derivatives | Dr. Richard Sandor · IDENTIFIED FROM THE TRANSCRIPT
“You're way ahead of me, Jack. Whether you're bullish or bearish, it depends if you short or long. And it depends if your interest rate risk management at your exposure. So you can lengthen or shorten, you can create a movement with today's infinite possibilities of risk management. You can custom tailor your portfolio as a bank, as an investor. Between any financial complex you want and you could do it cost effectively.”
2022-09-08 · Forward Guidance · The Eurodollar Market Is “Dead,” Says Godfather of Financial Derivatives | Dr. Richard Sandor · IDENTIFIED FROM THE TRANSCRIPT
“Department that managed interest rate risk. The whole idea of asset liability management did not exist. Okay, it was, you couldn't go to any bank and say, who do I speak to about hedging? They looked at you like you were from the central bank of Mars. Nobody you borrowed short and you lent long and you went home.”
2022-09-08 · Forward Guidance · The Eurodollar Market Is “Dead,” Says Godfather of Financial Derivatives | Dr. Richard Sandor · IDENTIFIED FROM THE TRANSCRIPT
“Okay, let me set the stage. When I first came to Chicago, a very wise guy said to me, well, rates are going up. That's good or bad. And he said, no, no, Richard, you're an academic economist. The movement erates is only relevant if you're short or long. Okay, so your view of the rate environment is informed whether you're naturally a buyer or a borrower or a lender, right? So what is your net exposure? You know, to what extent do you have floating rate assets versus floating rate liabilities? To what extent do you have a mismatch in terms of asset and liabilities and duration? So though certain banks you can't say one or the other because just Jack is a kind of a seven year old hundred year old guy in nineteen eighties when we started bond futures there was no bank in America that had a”
2022-09-08 · Forward Guidance · The Eurodollar Market Is “Dead,” Says Godfather of Financial Derivatives | Dr. Richard Sandor · IDENTIFIED FROM THE TRANSCRIPT
“Of trade because I had taught a class and I had a lot of executives in, including the head of the then commodity exchange authority and the executive EP of the Chicago Border Trade. They were looking for chief economist. I took a sabbatical from Berkeley. I said, I'll stay for a year. But I want to work on two things. This thing that I call financial futures and I also think there's a big opportunity to create an insurance derivatives market as well. And I'll come for a year. I'll develop the concept and then I will go back to Berkeley to teach.”
2022-09-08 · Forward Guidance · The Eurodollar Market Is “Dead,” Says Godfather of Financial Derivatives | Dr. Richard Sandor · IDENTIFIED FROM THE TRANSCRIPT
“Was a guy by the name of Tom Beaumar, who is concerned because he was the president of Freddie Mac. And he said, I'm getting scared. We're not supposed to own mortgages, but I've got $900 million or so, some piddling tiny number relative to what Freddie and Fanny now owns. And he said, we're just supposedly going to develop the secondary market. And all of that was in California, which was cutting edge in every single way. Tom said, you think you can develop a mechanism to hedge? And I said, yeah, Tom, you know, as you know, I've been working on this. And I think that Jenny May offers a way to do it. Concurrently, I got an offer from the Chicago Board.”
2022-09-08 · Forward Guidance · The Eurodollar Market Is “Dead,” Says Godfather of Financial Derivatives | Dr. Richard Sandor · IDENTIFIED FROM THE TRANSCRIPT
“To myself, you know, I don't think this can last. And so I think the only there was no government debt, the only debt that was issuance of bonds, the only debt that was outstanding was the mortgage market. I said, I wonder if you can turn interest rates into a commodity. And so I got the portfolio of an SNL at $18,000 and I tried to homogenize a mortgage interest rate. And it turned out you couldn't because there was redlining, you were treated differently if you were single or married, you know, and there was no homogeneity in the market. And then in 1970, Jinny Mays were born the first mortgage-backed security, and I got in touch with the president of Jinny May, and I got in touch with a few people and started exploring the whole idea. One of the people that I got a call from.”
2022-09-08 · Forward Guidance · The Eurodollar Market Is “Dead,” Says Godfather of Financial Derivatives | Dr. Richard Sandor · IDENTIFIED FROM THE TRANSCRIPT
“Are you very kind in your introduction, Jack? So thank you very much. And I want to take you back to days long ago in a universe, etc. that was unexplored. It was about at this time about 55 years ago, and I was a young academic teaching on the Berkeley campus in the nineteen sixties. I was teaching and I was trading equities at the time kind of as a professor and a colleague of mine said, well, you're doing okay. Trade commodities. So I started trading soybean oil and wheat and agricultural commodities and in sixty six and sixty nine you had a little bit of a blip in the interest rate markets and we had gone through a period of quiescence from the end of World War II until the late sixties and we've gone through a familiar scenario Jack Big Deficits and unpopular war see if this sounds familiar and I said”
2022-09-08 · Forward Guidance · The Eurodollar Market Is “Dead,” Says Godfather of Financial Derivatives | Dr. Richard Sandor · IDENTIFIED FROM THE TRANSCRIPT