82,853
edits
Commercial imperative: Difference between revisions
no edit summary
Amwelladmin (talk | contribs) No edit summary |
Amwelladmin (talk | contribs) No edit summary |
||
| Line 11: | Line 11: | ||
X is made of three components: | X is made of three components: | ||
*'''Historical X''': “Historical X” is the benefit you have ''already'' extracted from this {{t|contract}}. It will give you a comfy feeling, it will call to remind the chalet in France that you bought with it, and it may help project your expected benefit for the future, ''but for all other purposes it is meaningless''. It is in that foreign country called | *'''Historical X''': “Historical X” is the benefit you have ''already'' extracted from this {{t|contract}}. It will give you a comfy feeling, it will call to remind the chalet in France that you bought with it, and it may help project your expected benefit for the future, ''but for all other purposes it is meaningless''. It is in that foreign country called ''the past''. | ||
*'''Current X''': “Current X” is the as-yet-unrealised benefit you expect from current transactions and those you can realistically expect during the no-fault [[notice period]]<ref>Being the earliest point at which your counterparty could freely terminate its obligations under the contract.</ref> of the contract | *'''Current X''': “Current X” is the as-yet-unrealised benefit you expect from current transactions and those you can realistically expect during the no-fault [[notice period]]<ref>Being the earliest point at which your counterparty could freely terminate its obligations under the contract.</ref> of the contract. Think about this as “unbilled work in progress”. This is a benefit you can safely say you ''will'' earn, but have not yet. It is exciting — you can almost touch it! — but, compared with Future X, it will amount to ''bugger-all''. | ||
*'''Future X''': “Future X” is the benefit you can expect from contracts throughout the remainder of your relationship, ''if you both remain solvent and on good terms''.<ref>As [[Criswell]] famously said, “we are all interested in the future, for that is where you and I are going to spend the rest of our lives.”</ref> Future X is much less ''certain'', but it is ''much bigger''. Future X is the golden prize. It is why you show up for work. It is your unrealised potential. | *'''Future X''': “Future X” is the benefit you can expect from contracts throughout the remainder of your relationship, ''if you both remain solvent and on good terms''.<ref>As [[Criswell]] famously said, “we are all interested in the future, for that is where you and I are going to spend the rest of our lives.”</ref> Future X is much less ''certain'', but it is ''much bigger''. Future X is the golden prize. It is why you show up for work. It is your unrealised potential. | ||
===You are [[short an option]] on Future X=== | ===You are [[short an option]] on Future X=== | ||
Now. Look at the prospects for each type of X. | Now. Look at the prospects for each type of X. | ||
*Historical X is in the bank, and probably spent. Thanks for the memories. | |||
*Current X, meagre though it is, is as good as being in the bank. | |||
*''But you are [[short an option]] on Future X.'' | |||
Why are you [[short an option]] on Future X? Because ''you are not entitled to it''. You have to persuade your client to give it to you. You cannot stop your client terminating the {{t|contract}} if it wants to. Your client is free to walk away and take all that lovely, juicy Future X with it, ''and give it to someone else''. Since Future X is so much bigger than Current X, ''you should apply every fibre of your being to giving your client no earthly reason to take its business elsewhere''. | |||
Since Future X is so much bigger than Current X, ''you should apply every fibre of your being to giving your client no earthly reason to take its business elsewhere''. | |||
===[[Dick move]]s=== | ===[[Dick move]]s=== | ||
Now, during your relationship, you may, if the fancy takes you, indulge in what we might call “dick moves”.<ref>In fairness, your client might, too. Especially if it is a [[hedge fund]]. [[Hedge fund]]s are full of people who make dick moves, kind of as their business model.</ref> You might seek to exploit the literal wording of a {{t|contract}} even though you both know your commercial intention in entering it was something else. | Now, during your relationship, you may, if the fancy takes you, indulge in what we might call “dick moves”.<ref>In fairness, your client might, too. Especially if it is a [[hedge fund]]. [[Hedge fund]]s are full of people who make dick moves, kind of as their business model.</ref> You might seek to exploit the literal wording of a {{t|contract}} even though you both know your commercial intention in entering it was something else. | ||
There are (at least) two kinds of dick | There are (at least) two kinds of [[dick move]]s: | ||
*'''Mistrades''': [[Dick move]]s that arise from a misconception between the parties: your expectation and your client’s about the commercial intention were different. [[Cheapest to deliver]] options in [[credit derivatives]] are this kind of [[dick move]]. Your client sees a Triple A [[Ratings notches|rating]] eligibility criteria | *'''Mistrades''': [[Dick move]]s that arise from a misconception between the parties on a transaction: your expectation and your client’s about the commercial intention were different. [[Cheapest to deliver]] options in [[credit derivatives]] are this kind of [[dick move]]. Your client sees a Triple A [[Ratings notches|rating]] eligibility criteria — woo hoo! — and sees in it impeachable credit. You look at it and see some overworked grad at Moody’s who doesn’t understand correlation risk and has handed you an opportunity to dump the crappiest, most poorly risked, implausibly rated bonds that you can find into your portfolio.<ref>Once upon a time there were plenty. They all wound up in CDO<sup>3</sup> deals.</ref> | ||
*'''“Tent-peg” mistrades''': A [[broker]] servicing its client is somewhat [[short an option]] — the one that arises because ''the client is always right'' — and as a consequence will write in ''ostensibly'' outrageous legal protections, which it never intends to use, by way of defensive strategy to spike the client’s temptation to take advantage of its | *'''“Tent-peg” mistrades''': A [[broker]] servicing its client is somewhat [[short an option]] — the one that arises because ''the client is always right'' — and as a consequence will write in ''ostensibly'' outrageous legal protections, which it never intends to use, by way of defensive strategy to spike the client’s temptation to take advantage of its supine broker. | ||
===Legal risk=== | ===Legal risk=== | ||