Phil Fernbach

Traders like derivatives because they can often generate really good returns in Financial markets return is always correlated with risk.

So if something has a high return, it's also gonna have a high risk The problem with derivatives is because they're so complicated It's often impossible to see the risk or it's very hard to see the risk the risk only emerges in sort of unusual situations so it's like

So if something has a high return, it's also gonna have a high risk The problem with derivatives is because they're so complicated It's often impossible to see the risk or it's very hard to see the risk the risk only emerges in sort of unusual situations so it's like

So if something has a high return, it's also gonna have a high risk The problem with derivatives is because they're so complicated It's often impossible to see the risk or it's very hard to see the risk the risk only emerges in sort of unusual situations so it's like

that the product is, you know, it seems to be behaving just very safely, but then something changes and all of a sudden, instead of losing 10% of its value, it loses 90% of its value or something like that.

that the product is, you know, it seems to be behaving just very safely, but then something changes and all of a sudden, instead of losing 10% of its value, it loses 90% of its value or something like that.

that the product is, you know, it seems to be behaving just very safely, but then something changes and all of a sudden, instead of losing 10% of its value, it loses 90% of its value or something like that.

Now, what ended up happening in the financial crisis was that these derivative products were ending up in places where they didn't belong, in places that should not have been taking on this amount of risk. Things like pension funds that should be relatively safe investments. Why did they end up there? Because the people buying them just did not appreciate or realize how complicated they were.

Now, what ended up happening in the financial crisis was that these derivative products were ending up in places where they didn't belong, in places that should not have been taking on this amount of risk. Things like pension funds that should be relatively safe investments. Why did they end up there? Because the people buying them just did not appreciate or realize how complicated they were.

Now, what ended up happening in the financial crisis was that these derivative products were ending up in places where they didn't belong, in places that should not have been taking on this amount of risk. Things like pension funds that should be relatively safe investments. Why did they end up there? Because the people buying them just did not appreciate or realize how complicated they were.

And so what happened was when the price of real estate in the United States started going down, these products, which were tied to the value of real estate and like the default probabilities on mortgages, they crashed in value.

And so what happened was when the price of real estate in the United States started going down, these products, which were tied to the value of real estate and like the default probabilities on mortgages, they crashed in value.

And so what happened was when the price of real estate in the United States started going down, these products, which were tied to the value of real estate and like the default probabilities on mortgages, they crashed in value.

And there was this huge amount of risk in our financial system because these products had entered into all these different areas and they were highly represented in all these different areas.

And there was this huge amount of risk in our financial system because these products had entered into all these different areas and they were highly represented in all these different areas.

And there was this huge amount of risk in our financial system because these products had entered into all these different areas and they were highly represented in all these different areas.

And all of a sudden, kind of everybody was caught by surprise that the pension fund was losing a huge amount of its value because it had exposure to these very risky things because people didn't realize that the risk was there.

And all of a sudden, kind of everybody was caught by surprise that the pension fund was losing a huge amount of its value because it had exposure to these very risky things because people didn't realize that the risk was there.

And all of a sudden, kind of everybody was caught by surprise that the pension fund was losing a huge amount of its value because it had exposure to these very risky things because people didn't realize that the risk was there.

That's absolutely right. And I think it happens at more than one level. So if you think about a pension fund manager who knows what a derivative is, but isn't a super expert in a derivative, he's relying on the people who do the analysis of the derivatives to kind of think, oh, this is potentially like a good investment vehicle for my portfolio. He's not thinking in terms