Dear ATCA Colleagues

[Please note that the views presented by individual contributors are not necessarily representative of the views of ATCA, which is neutral. ATCA conducts collective Socratic dialogue on global opportunities and threats.]

Alexander Hoare is the eleventh generation Chief Executive of C Hoare & Co, England's oldest private deposit bank based in London. C Hoare and Co was founded in 1672 by Sir Richard Hoare, and remains 100% owned by the direct descendants of the bank's founder. Prior to joining C Hoare & Co, Alexander Hoare worked as a marketing consultant for PA Consulting Group until 1987. Alexander Hoare is a non-executive director of Jupiter Green Investment Trust, a member of the Westminster Abbey Finance and Advisory Council, a trustee of Training for Life, a former trustee of Trinity Hospice, and a former President of the Groupement Européen de Banques. Born in 1962, he graduated from the University of Edinburgh with a BComm with honours in marketing. He writes:

Dear DK and Colleagues

Re: Destructive Creativity, Leverage and The Derivatives Market

Excellent lucid article on ATCA from Dr Malmgren, "The Fear of Central Bankers -- Flight from Illiquidity, Derivatives and Heightened Risk of Contagion."

The paragraph on the USD 25 trillion derivatives market is the subject that intrigues me. For every loser on a derivative contract, there is also a winner (assuming the losing counterparty hasn't gone bust). This means we can expect to see huge re-allocation of capital from losers to winners. Probably the rich will get richer...

Even losers don't always lose, as they may have been entering into the derivative to hedge another exposure they had. Leverage multiplies all these effects but doesn't change the ultimate amount of capital in the system.

If I was a central banker, I would be wondering how many firms are likely to go bust, giving rise to how many derivative contracts dishonoured, leading to how many winners frustrated. I see all of this as capitalism working with its normal destructive creativity. The weak will be destroyed, and new winners will arise, and survive to thrive another day.

We live in interesting times!

Yours

Alexander

[ENDS]

We look forward to your further thoughts, observations and views. Thank you.

Best wishes

For and on behalf of DK Matai, Chairman, Asymmetric Threats Contingency Alliance (ATCA)