Another economics question - should derivatives be banned ?

[burt-oh-my!]

I am not so sure but are there no alternatives ??? Are we controlled by this elite ???? How about the damages they cause ??? I suspect money changers make $$$$$$$$ if they can cause a collapse in some third world country

One of capitalisms great failings is that money changers are the richest of us and these money changers are brilliant folks. What a sad waste of intelligence


I am all for freedom

I believe in full school vouchers so people can educate themselves as they see fit but common sense needs to prevail

In the case of gambling it causes social damage and destroys lives and families which we all pay for



Look, some people have a weakness to gambling and are addicted, that is why

I agree with much of what you say. But I will say that when you talk about money changers making the most, being the most brilliant - well, in a capitalist society the ALLOCATION of capital is extremely important, in fact it is the heart of capitalism. So the financial markets in my view are extremely importatnt because they are in fact a mechanism to continuously allocate and reallocate capital to hwere it will earn the highest returns. Of course, it is imperfect, there are overshoots, etc, but as the old saying goes, Capitalism is a rotten system, but unfortunately it is by far the best system out there ( or something like that).

I agree with you about the gambling aspect of it: some people get caught up in it and it becomes an addiction. But i will say that the most successful in my view work extremnely hard. It is not luck in the long run, although any given trade is mostly luck.

 

[JohnLarue]

I am not so sure but are there no alternatives ??? Are we controlled by this elite ???? How about the damages they cause ??? I suspect money changers make $$$$$$$$ if they can cause a collapse in some third world country

One of capitalisms great failings is that money changers are the richest of us and these money changers are brilliant folks. What a sad waste of intelligence


I am all for freedom

I believe in full school vouchers so people can educate themselves as they see fit but common sense needs to prevail

In the case of gambling it causes social damage and destroys lives and families which we all pay for



Look, some people have a weakness to gambling and are addicted, that is why

If you want to make social changes, the stock markets are the wrong place to start
The volume of day traders is barley measurable relative to institutional trading volume (< 0.01% ????)
This difference is even larger when examining short selling and derivatives volumes.
These are tools the institutions use to reduce risk and they will not be willing to give them up because some fools feels they can beat the market by using charts.

Change the rules of the game in order to save Day traders from thier own foolishness
Not going to happen

Day trading is a fools dream (in my opinion) and the majority of the fools who get into it need to take a financial beating before they figure out the markets are unforgiving.
I have yet to meet a day trader who can consistently make a profit in good and bad markets.

If you feel that gambling is an evil that need to be controlled, put your efforts into battling govt run lotteries and sports betting, which markets promises of riches to the foolish masses.
Financial markets go out of their way to warn everyone that there are risks in trading or investing
(there is a difference between trading and investing & you may consider holding back on such a strong opinion until you understand this difference).

If some nimrod thinks he is smarter than the market, then he will get what he deserves (losses).
if he did not lose that $ day trading, he would lose it gambling in a different form.

Find another cause.

 

[fuji]

They also serve a very useful purpose for market players who wish to reduce their credit risk and concentration in maturity, geography and issuer.

I'm not convinced that they do that in a non-speculative way. It's possible to build good non-speculative trading positions using conventional put/call equity derivatives, and things like currency futures or commodity futures are obviously valuable in ordinary commerce. I am not sold on the notion that CDS's fill a non-speculative need the way run of the mill derivatives do. Meanwhile they appear to destabilize the bond market, which is meant to be the most conservative, least risky investment that there is--grandmothers are encouraged to buy the stuff that is destabilized by CDS's.

I'm not even convinced that we should allow interest rate swaps. So far as I can see the whole rate swap market exists as a way for firms to get loans at a cheaper rate than their risk profile justifies. While it's true that someone is purchasing the associated risk, I think it leads in the real economy to real investment that are not justified by the actual economic fundamentals of the situation. However, simply on the grounds that swaps have been around a lot longer I'm less inclined to point a gun at them than the relatively newer, less well understood, and apparently damaging CDS's.

The thing about CDS's that bugs me most is that they appear in reality (as opposed to in theory) to damage market players OTHER than those who trade them, and that's why I view them as being so toxic--they hurt gramma who thought her bonds were stable.

I see the harm, but I don't see the benefit.

 

[JohnLarue]

I see the harm, but I don't see the benefit.

I guess that happens when you do not understand a topic

 

[fuji]

I guess that happens when you do not understand a topic

I likely understand it much better than you do.

 

[burt-oh-my!]

I'm not convinced that they do that in a non-speculative way. It's possible to build good non-speculative trading positions using conventional put/call equity derivatives, and things like currency futures or commodity futures are obviously valuable in ordinary commerce. I am not sold on the notion that CDS's fill a non-speculative need the way run of the mill derivatives do.

I see the harm, but I don't see the benefit.

Fuji, I see speculation as being an important part of the value of markets, so I wouldn't condemn a financial instrument simply because it attracts speculators. I don't see how you can avoid speculators in any financial market.

But having said that, if the instrument itself is several degrees removed from the real economy, and truly is an abstraction based on an abstrction based on an abstraction, then yes, the whole thing becomes a waste.

Two other points: if anything of these things are marketed to actual investors (institutional or otherwise) then I have problems because i can guarantee you that 99% of the people being 'marketed' to don't truly understand these things. Hell, I bet you 90% of people buying universal or (shudder) whole life insurance don't understand it either.

Secondly, the whole thing would be a lot safer paradoxically if in 2008 they let the chips fall where they would, and more firms went under because of these things. Everyone is saying that the failure of Lehman Bros was a mistake, but I disagree.Can you imagine if AIG had been allowed to fail? I can guarantee you that everyone IN THE INDUSTRY would be wanting more controls in that case, maybe not from the government, but from within the industry itself, so that they could know about what kind of counterparty risk they have when they do a deal with another financial institution. The potential bankruptcy of someone you do business with has a wonderfully clarifying effect on one's thinking!

I am not actually wishing that that happened, but it would of truly cleaned this whole issue up once and for all. Maybe it did anyhow, we DID have a few bankruptcies. But I think the bailouts have done the opposite: make everyone think that if you do business with a large key firm, "too big to fail' will be invoked and you essentially don't have to worry about counterparty risk.

 

[Yoga Face]

I agree with much of what you say. But I will say that when you talk about money changers making the most, being the most brilliant - well, in a capitalist society the ALLOCATION of capital is extremely important, in fact it is the heart of capitalism. So the financial markets in my view are extremely importatnt because they are in fact a mechanism to continuously allocate and reallocate capital to hwere it will earn the highest returns. Of course, it is imperfect, there are overshoots, etc, but as the old saying goes, Capitalism is a rotten system, but unfortunately it is by far the best system out there ( or something like that).

I agree with you about the gambling aspect of it: some people get caught up in it and it becomes an addiction. But i will say that the most successful in my view work extremnely hard. It is not luck in the long run, although any given trade is mostly luck.

WHen the IMF insists some poor third world country grow cotton to pay off its IMF loan instead of feeding the starving ...


When money changers make money off of misery ....

When money changers drive down the economy ...

Anyways, I am no expert on the market but it seems to me the market has evolved on its own as the elite, money changers and bankers ( the ruling class ) seem it fit to do as it makes them money

 

[JohnLarue]

I likely understand it much better than you do.

I do not think so.
Otherwise you would know what the benefits are

Did you pass the level 3 test?

 

[Yoga Face]

If you want to make social changes, the stock markets are the wrong place to start


Find another cause.

Actually John, I saw the Dean of Harvard business school strongly lamenting the fact so many of his grads go to wall street instead of using their creativity to effect positive social changes

He feels like me that they are making fortunes but contribute nothing to society

Writing brilliant math programs to quicken a trade by a nanosecond was his one example

It was nice to hear someone of high authority back my naive and blue collar opinion

 

[Bear669]

But that is a totally different topic..

Actually John, I saw the Dean of Harvard business school strongly lamenting the fact so many of his grads go to wall street instead of using their creativity to effect positive social changes

He feels like me that they are making fortunes but contribute nothing to society

Writing brilliant math programs to quicken a trade by a nanosecond was his one example

It was nice to hear someone of high authority back my naive and blue collar opinion

Allocation of social resources is a VERY valid concern (i.e. colleges & universities). However before curtailing the financial MBAs, we need to

SHUT DOWN HALF THE LAW SCHOOLS in NORTH AMERICA

For many years there has been excellent analysis showing how lawyers are a huge drain on society in the USA and Canada (while they are desperately needed in South America, Africa etc)

 

[burt-oh-my!]

Whoo hoo, I must say the thought of a world with less lawyers makes me drool with excitement...until I realize that then they would be more scarce and the price would go up!

 

[JohnLarue]

I do not think so.
Otherwise you would know what the benefits are

Did you pass the level 3 test?

Come on Fuji:

It is a simple question
Are you too chicken shit to provide an answer?

 

[fuji]

I don't provide personal information about myself on terb. Never have. Never will.

You can review my posting history and verify that on a variety of different topics that has been my answer to very many people.

You're going to have to argue this on the merits, I don't accept your claim to be an authority. You're going to have to show me, and so far, you haven't. The benefits claimed for CDS have not been borne out in empirical market data, but only in some theory, which theory is now largely discredited by more recent events. The reality is that CDS's are destabilizing to important parts of the financial system in a way that garden variety derivatives are not.

 

[JohnLarue]

Actually John, I saw the Dean of Harvard business school strongly lamenting the fact so many of his grads go to wall street instead of using their creativity to effect positive social changes

He feels like me that they are making fortunes but contribute nothing to society

Writing brilliant math programs to quicken a trade by a nanosecond was his one example

It was nice to hear someone of high authority back my naive and blue collar opinion

One professors feelings are irrelevant to the question you asked, which is should the use of derivatives be banned
The simple straightforward answer is no they should not.


You use terms like "money changers' to illustrate you lack of respect for bankers
Fine, some on Wall Street are indeed egotistical and self-serving.
However before you condemn the capitalist system, I suggest you give careful thought to
a) The alternatives (Communism)- No thank you, they tried that for 80 years in Russia & it was a disaster with widespread corruption, waste and zero respect for human rights. It might take 50 years for Russia to recover
b) Where we would be if "Money Changers" did not lend money for innovation and investment
200 -500 years behind where we are now, illiterate, on horseback, without lifesaving medicines and without many of the daily conveniences you take for granted (Internet, telephone, TV, clean cloths & enough to eat)

 

[Yoga Face]

One professors feelings are irrelevant to the question you asked, which is should the use of derivatives be banned
The simple straightforward answer is no they should not.


You use terms like "money changers' to illustrate you lack of respect for bankers
Fine, some on Wall Street are indeed egotistical and self-serving.
However before you condemn the capitalist system, I suggest you give careful thought to
a) The alternatives (Communism)- No thank you, they tried that for 80 years in Russia & it was a disaster with widespread corruption, waste and zero respect for human rights. It might take 50 years for Russia to recover
b) Where we would be if "Money Changers" did not lend money for innovation and investment
200 -500 years behind where we are now, illiterate, on horseback, without lifesaving medicines and without many of the daily conveniences you take for granted (Internet, telephone, TV, clean cloths & enough to eat)

Correct about derivatives but my question was meant to be broader

I use the term money changers in a derogative sense to only those who make a fortune and contribute nothing, indeed, cause harm with their "greed is good" philosophy

The housing collapse is an example as the fat cats who make fortunes are the ones who are supposed to pervent meltdowns but they are like BP and profit overrides prudent caution

Those who work on wallstreet without concern for their social effect are not worth respect

The dean of harvard business school should be listened to

My concern of capitalism is the same of any system that has a ruling class ( and Russia was not Marxist as it had a ruling class which Marx warned about) which is

What you think you know is filtered through the eyes of the ruling class and is the propaganda of the day

We will never know if there is a viable alternative to Capitalism until the capitalist ruling class no longer has the power to tell us what to think and the power to destroy those societies who seek alternatives

 

[JohnLarue]

I don't provide personal information about myself on terb. Never have. Never will.

I can respect and understand that position

You can review my posting history and verify that on a variety of different topics that has been my answer to very many people.

Sorry, I have read enough of your bullshit. I do not wish to become re-aggravated all over again

You're going to have to argue this on the merits, I don't accept your claim to be an authority. You're going to have to show me, and so far, you haven't. The benefits claimed for CDS have not been borne out in empirical market data, but only in some theory, which theory is now largely discredited by more recent events. The reality is that CDS's are destabilizing to important parts of the financial system in a way that garden variety derivatives are not.

#1. I do not have to do anything. You are the one who stated he does not understand.
# 2. I have not claimed to be an authority (please review this thread). I did indicate there is value in derivatives.
# 3 You arrogantly stated you understand the matter better than I. That is possible, however , I tend to doubt it
I asked you a simple question requiring a simple yes or no answer. A yes or no answer would probably clarified the issue.
So the onus is once again on you to prove that you have a better understanding.

#4. Again, I will caution you on telling me what I must do . On several occasions I have asked you to prove and back up your ridiculous statements with hard numbers.
(e.g. Taxation of our energy industry, Allocation of Co2 production, govt sponsored bastard production) and in each case you either outright refused, talked all around the point or just did not bother.

if you were reasonable and appear willing to compromise on an issue, I could take the time to explain the benefits of CDS's to you, however, your posting history shows you are unable to compromise or move off your initial position
You also appear to take positions for the single benefit of arguing, and annoying others rather than making an intellectual point

So I am inclined to tell you to kiss my ass when you tell me what I must do.
A fool is one thing, an arrogant , know-it -all fool is a totally different matter

 

[JohnLarue]

Correct about derivatives but my question was meant to be broader

I use the term money changers in a derogative sense to only those who make a fortune and contribute nothing, indeed, cause harm with their "greed is good" philosophy

The housing collapse is an example as the fat cats who make fortunes are the ones who are supposed to pervent meltdowns but they are like BP and profit overrides prudent caution

Those who work on wallstreet without concern for their social effect are not worth respect

The dean of harvard business school should be listened to

My concern of capitalism is the same of any system that has a ruling class ( and Russia was not Marxist as it had a ruling class which Marx warned about) which is

What you think you know is filtered through the eyes of the ruling class and is the propaganda of the day

We will never know if there is a viable alternative to Capitalism until the capitalist ruling class no longer has the power to tell us what to think and the power to destroy those societies who seek alternatives

OK ???
What is your solution?

Its one thing to whine and bitch about whats wrong
However unless you have a viable alternative, then are you not the one who is contributing nothing?
Other than reciting commie propaganda

At least the Wall Street Banker puts in 80 hours a week.
And in many cases he makes is clients a lot of money to be put back into the economy.

As you search for viable left wing solutions, just remember that throughout history, when ever there has been radical sudden changes to an economic system, there has also been social upheaval, misery and violence.
Careful what you wish for

What is also apparent, is you have formed opinions (and very negative ones) prior to obtaining a full understanding of a matter (e.g. Derivatives)
You may consider doing it the other way around. Understanding followed by opinion formulation.

 

[WoodPeckr]

At least the Wall Street Banker puts in 80 hours a week.
And in many cases he makes is clients a lot of money to be put back into the economy.

WTF!!!!!!
There you go again Frenchy, waxing delusional on us!
You probably really believe that poppycock, eh???
Betcha learnt that in business school, eh???

Team 'w' takes the economy into the TOILET and you concoct out of some OxyContinized stupor that Team 'w' put a lot of money back into the economy because Banksters work 80 hour weeks!!!
These thieves were on vacation half the time, you know just like Dubya!
These thieves TOOK MONEY OUT of the economy! Only your fuzzy numbers show money went back into the economy!....

 

[Yoga Face]

OK ???
What is your solution?

Its one thing to whine and bitch about whats wrong
However unless you have a viable alternative, then are you not the one who is contributing nothing?
Other than reciting commie propaganda

At least the Wall Street Banker puts in 80 hours a week.
And in many cases he makes is clients a lot of money to be put back into the economy.

As you search for viable left wing solutions, just remember that throughout history, when ever there has been radical sudden changes to an economic system, there has also been social upheaval, misery and violence.
Careful what you wish for

What is also apparent, is you have formed opinions (and very negative ones) prior to obtaining a full understanding of a matter (e.g. Derivatives)
You may consider doing it the other way around. Understanding followed by opinion formulation.

I am not sure if a genuine Marxist state - where there is no ruling class but a society genuinely run by the people for the people- is possible or what it would look like but neither do you so do not close your mind

Capitalism may well be the best because everything else is worse so it wins by default

But how can we know if the USA destroys any social attempt to develop alternatives ? They do this with boycotts, the special forces and if need be the armed forces even when there is no threat

They have destroyed several DEMOCRACIES they disagreed with and I am more informed than most when I state that several wonderful and advanced societies existed before the forces of capitalism and colonialism took over and crushed them

Read some Chomsky

And yes, any major social change will cause violence as those in power refuse to share that is why they used the guillotine during the French revolution - to stop the landowners from taking back control


And yes I applaud those honest hard working money changers as they induce the flow of capitol that is the lifeblood of capitalism

 

[JohnLarue]

WTF!!!!!!
There you go again Frenchy, waxing delusional on us!
You probably really believe that poppycock, eh???
Betcha learnt that in business school, eh???

Team 'w' takes the economy into the TOILET and you concoct out of some OxyContinized stupor that Team 'w' put a lot of money back into the economy because Banksters work 80 hour weeks!!!
These thieves were on vacation half the time, you know just like Dubya!
These thieves TOOK MONEY OUT of the economy! Only your fuzzy numbers show money went back into the economy!....

Read the title of the post
Its about derivatives, its not about your boggyman George W Bush
Since its about derivatives, your opinion is not worth spit because you do not understand what you call "fuzzy math"

You are such a moron I suspect you would call calclus and algrebra "Fuzzy math"

Butt out, nobody asked you for your twisted opinion.