murcielago

I am writing from my "other" account and I make a living in financial modeling.

While in general the article is true, as always, journalists fudge truth just a bit to sound more sensationalistic.

> But Mr. Singer wonders if his company, Robison Oil, should be getting a better deal. He uses derivatives like swaps and options to create his fixed plans. But he has no idea how much lower his prices — and his customers’ prices — could be, he says, because banks don’t disclose fees associated with the derivatives.

Sure there are fees, but most of the premium is the price of risk, the price of the insurance if you will. While banks sometimes do some proprietary pricing enhancements, the foundation methods are usually the same and can be picked from books (like the bible of derivative pricing by John C. Hull) and papers. I know for a fact that big commodity companies (e.g. oil companies) have their own financial analysts on staff to double check derivative pricing. And it is not just that this allows you to haggle with the banks - you do no want to get derivatives that are too cheap either. That may be a result of incompetence or a sign of trouble - should the derivative seller pay to you they will not have enough capital to cover their obligations. That is exactly what happened with AIG and Lehman Brothers.

Now, Robison Oil may not be that big to have financial analysts on staff, but they could use third-party pricing consultants, at least.