Concluding Remarks:
Clearly, the management of MG would have benefitted from implementing the recommendations put
forth in the Group of Thirty Derivatives study. These recommendations are basic, but the blatant
disregard for these principles cost MG a mere $1.5 billion.
While a financial crisis of MG's magnitude is rare, the nature of their losses is becoming more frequent
in the financial marketplace. Are derivatives the cause of these unexpected losses that seem to
commonly blindside companies? Every few weeks we hear about a new company that lost money
either speculating in the derivatives market or lacking an understanding of a hedge position they
entered into. As the derivatives markets continue to grow, we will continue to hear of losses.
MG's disaster in the oil markets should be seen as a reminder to the corporate community to
understand the nature of their position in financial markets and to understand the ramifications of
market movements on your financial positions. It should not be seen as a warning sign to corporate
CFO's to stay away from derivatives markets. These markets provide tremendous value to their users.
The swaps and futures markets provided MGRM with an opportunity to transfer their market risk.
They successfully did this. They failed, however, to accurately estimate the funding risk of their hedge
position. By following the recommendations of the G30 Derivatives study, MG's near financial ruin
could have been avoided.