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>derivatives contracts This is the cause. It is not mere speculation, like it is with commodities trading, it is "trading" of imaginary things with other peop
by dschiptsov 11y ago
>derivatives contracts
This is the cause.
It is not mere speculation, like it is with commodities trading, it is "trading" of imaginary things with other people's money in a way that it will be other people's problems. Now there is no way to convert these imaginary things back to other people's money, so it became German people's problem.
- mohawk 11y agoI would state it differently. Derivatives can be quite useful for the economy, because they allow people to offload risk, e.g. companies can hedge their commodity or exchange rate risks. They become a problem in banks that have a lot of them ("weapons of financial mass destruction") because of their opacity on the balance sheet (DB has one line in their balance sheet for derivatives, ~ 500 billion Euros) and because banks offload their long-tail risks to their depositors and ultimately the taxpayer. The new bail-in rules mean that depositors in banks are essentially guaranteeing the bank's balance sheet. Think about that the next time you look at your bank account.