Derivatives on TV: A Tale of Two Derivatives Debacles in Prime-Time

11 Pages Posted: 16 Feb 2001

See all articles by Peter H. Huang

Peter H. Huang

University of Colorado Law School

Frank Partnoy

University of California, Berkeley - School of Law

Kimberly D. Krawiec

Duke University School of Law

Date Written: 2000

Abstract

This essay discusses two recent episodes in the financial derivatives industry and the television coverage of those episodes. Our discussion focuses on (1) the 1994 bankruptcy of Orange County and the 60 Minutes television program describing that county's derivatives losses and (2) the 1998 near-collapse of Long-Term Capital Management (LTCM) and the PBS NOVA program describing that hedge funds' losses.

Orange County and LTCM appear at opposite ends of the spectrum of recent derivatives losses. Orange County's Treasury was a one-man show, and its now-infamous treasurer, Robert L. Citron, was a seventy-year-old college dropout. In contrast, LTCM was a slick, sophisticated hedge fund, led by John Meriwether, whose principals included two Nobel laureates and several "rocket scientists" recruited from the investment bank Salomon Brothers. Notwithstanding these differences, Orange County and LTCM had two things in common: each lost more than a billion dollars on derivatives and each shrouded the details of its operations in secrecy.

Coverage of LTCM was more accurate than coverage of Orange County. We discuss possible reasons for the difference and make some recommendations about how television programs could depict the derivatives markets more accurately, an important issue given the substantial number of policymakers who learn about derivatives through television. We conclude that television, when done properly, is more than capable of keeping pace with derivatives markets.

Suggested Citation

Huang, Peter H. and Partnoy, Frank and Krawiec, Kimberly D., Derivatives on TV: A Tale of Two Derivatives Debacles in Prime-Time (2000). U San Diego Law & Econ Research Paper No. 08; U of Penn, Inst for Law & Econ Research Paper 01-04; USC Law School, Olin Research Paper No. 01-1. Available at SSRN: https://ssrn.com/abstract=259854 or http://dx.doi.org/10.2139/ssrn.259854

Peter H. Huang (Contact Author)

University of Colorado Law School ( email )

Colorado Law
401 UCB
Boulder, CO 80309
United States
303 492-4563 (Phone)
303-492-1200 (Fax)

HOME PAGE: http://lawweb.colorado.edu/profiles/profile.jsp?id=456

Frank Partnoy

University of California, Berkeley - School of Law ( email )

215 Boalt Hall
Berkeley, CA 94720-7200
United States

Kimberly D. Krawiec

Duke University School of Law ( email )

210 Science Drive
Box 90362
Durham, NC 27708
United States

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