The Practical Guide to Wall Street: Equities and Derivatives

A Comment on the Events of 2008

The changes that have occurred in the global financial markets while this book was being written were unlike anything experienced since the Great Depression. The loss of confidence triggered by the deflation of a speculative housing bubble brought the market for short-term lending to a standstill, jeopardizing the solvency of financial institutions globally. Governments and central banks around the world took unprecedented actions including bailouts, nationalizations, and stimulus packages worth trillions of dollars. The consequences of these interventions will not be fully understood or appreciated for many years.

This uncertainty has raised many questions about the future of the financial services industry with gloom-and-doom prognostications of the end of Wall Street. While perhaps representative of the sentiment of the moment, these concerns are greatly exaggerated. The painful lessons learned about credit risk, leverage, and speculation will undoubtedly change the industry, but the recent market conditions are no more an indication of the end of financial services than the imploding of the technology bubble in 2000 spelled the end of the Internet. The industry will evolve and improve, but the trading, pricing, and risk management of the products described in this book will remain largely the same.

 

MATTHEW TAGLIANI, CFA November 2008