3 ms·

> "The "any questions at this point" comment seems a bit snippy and unnecessary, I was just trying to figure out what you were talking about... but no biggy her

> "The "any questions at this point" comment seems a bit snippy and unnecessary, I was just trying to figure out what you were talking about... but no biggy here goes." Sorry if it came across like that, I did wonder if that's how it would be interpreted, but I wanted to make it clear that I was pausing for feedback. Thanks for not holding it against me, let's continue. > "Financial derivatives get a bad rap because they sound scary and most people don't know what they are. They do however play a massively important role in managing risk." I understand derivatives in general offer an insurance policy against uncertainty in financial markets (thanks for the explanations of the different types, a couple were new to me). However, one could argue that insurance isn't a productive use of money, especially if the investment being insured against isn't part of the productive economy. What are your thoughts on this?

lujim 11y ago
First of all I mistyped. When I said CDO i mean CDS (credit default swap). Yes I think insurance and other risk management tools are a very productive use of money. The joint stock company allowed the English and Dutch East India companies to take risks that no individual would be able to take alone. Now if insurance allows someone who decides to build an ocean front home on the Gulf Coast where three other houses have already floated away then its not very productive.
- ZenoArrow 11y ago
  > "Now if insurance allows someone who decides to build an ocean front home on the Gulf Coast where three other houses have already floated away then its not very productive." Okay, so it is possible for insurance to be used for non-productive means. Would this extend to anything that wasn't a productive investment? For example, if I buy a house, and I insure that house, is the money I spend on insurance being productive? Let's also extend this to at another example, the government bond market, which as I'm sure you're aware controls how much new money a government can create. If you take safeguards against hyperinflation, is there any reason you would want to keep the current government bond market (bearing in mind that the bonds come with a debt burden for the government)?

lujim 11y ago

First of all I mistyped. When I said CDO i mean CDS (credit default swap). Yes I think insurance and other risk management tools are a very productive use of money. The joint stock company allowed the English and Dutch East India companies to take risks that no individual would be able to take alone. Now if insurance allows someone who decides to build an ocean front home on the Gulf Coast where three other houses have already floated away then its not very productive.

ZenoArrow 11y ago
> "Now if insurance allows someone who decides to build an ocean front home on the Gulf Coast where three other houses have already floated away then its not very productive." Okay, so it is possible for insurance to be used for non-productive means. Would this extend to anything that wasn't a productive investment? For example, if I buy a house, and I insure that house, is the money I spend on insurance being productive? Let's also extend this to at another example, the government bond market, which as I'm sure you're aware controls how much new money a government can create. If you take safeguards against hyperinflation, is there any reason you would want to keep the current government bond market (bearing in mind that the bonds come with a debt burden for the government)?