There are a number of reasons that people have come up with, for the current financial crisis. The most talked about of all these – structured products a.k.a. OTC (Over The Counter) derivative instruments. OTC derivatives are, unlike exchange traded ones customizable and generally transacted between institutional investors. It is the customizable part of these instruments that brings in a lot of innovation into them. It’s a legend in itself how this industry shaped up to reach the size and supremacy that it attained today.
Now, the whole purpose of me beating around the OTC derivatives is a piece of news that I came across today. JP Morgan, probably the only surviving investment bank among the big 10, posted a profit of $ 5 Billion in the worst financial year in the history of wall street. When I read this news my immediate reaction was – oh my god! I got this thing completely wrong! I forgot to tell you, I was (aha, I am still) a firm believer in the theory that it was the innovation in OTC market that led to the worst meltdown that we’ve been witnessing in the markets. In fact, this was the reason I started off writing this.
But as I started to type, a thought crossed my mind. Is it possible that the investment bank that mediates the deals be profitable in transaction where both parties lost? May be! But then will it be a reason to celebrate for the I-bank? I don’t think so. At least, not in the long run. As My gut feel is this is the beginning of the end of another giant I-bank. May be I am being too pessimistic. Or may be it’s my ignorance. Time will tell!
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