3 ms·

There will be another crash, because there are too many players looking for the trillion dollar score. They can’t all win, yet how many do you think wouldn’t ri

by borism 16y ago

There will be another crash, because there are too many players looking for the trillion dollar score. They can’t all win, yet how many do you think wouldn’t risk everything, even what is not theirs, for that remote chance to score big ? Put another way, there is zero moral hazard attached to any trade. So why wouldn’t traders take the biggest risk possible ? well I'm sorry, but that also applies to VC/angel funded startups game nowadays, which Cuban participates in.

thefahim 16y ago
Very constructive.
gruseom 16y ago
I disagree. Angels and VCs make money by investing in people who build great companies. What do derivatives traders build?
- arethuza 16y ago
  It could be argued that derivatives traders are simply satisfying a market requirement - what about the folks who buy these things not really understanding what it is they are getting into, even though they are investment "professionals".
- yummyfajitas 16y ago
  Derivatives traders build ways for great companies to hedge risk. They also push the price of assets towards their correct value, allowing the price in the present to reflect information on the future.
  - gruseom 16y ago
    The trouble with this argument is that it is a reductio ad absurdum after the fiasco of the last few years. It's hard to hear something like "they also push the price of assets towards their correct value" with a straight face. Has it not become painfully clear that the financial system has come to dominate the economy to a greater extent than the value it provides? http://en.wikipedia.org/wiki/File:NYUGDPFinancialShare.jpg http://en.wikipedia.org/wiki/File:NYUGDPFinancialShare.jpg And that this has been driven by the interests of those who profit personally from such a configuration, in opposition to the interests of society as a whole? http://www.thisamericanlife.org/radio-archives/episode/405/inside-job http://www.thisamericanlife.org/radio-archives/episode/405/i.... I'd say those statements are hardly controversial to anyone without a vested interest in the status quo. I grant that "hedging risk" and that other standby, "ensuring liquidity", do have value, just not to justify the existing system. The liquidity argument in particular comes off as ironic in light of the fact that trillions of public dollars provided to the financial sector in the name of opening liquidity to the general economy did no such thing.
    - yummyfajitas 16y ago
      Actually, a lack of proper derivatives did help to create the housing bubble. Until a few years ago, it was very difficult to short the housing market. It was only fairly recently that speculators such as Paulson, Magnetar and others managed to successfully speculate in the right direction. This certainly helped to bring housing prices closer to their proper level. In any case, since you feel the financial sector is too large, what do you believe is the proper size of the financial sector?
      - gruseom 16y ago
        I don't have time to study this question so my answer is useless, but to play along, I'll go with 5% or so of GDP. Why? Because the two historical periods that exceed 5% are (1) the Great Depression and (2) the 1980+ era of financialization leading to the recent crash. (I'm getting this from the Wikipedia graph I linked to.) To turn to your other point, I certainly respect what you're saying, but once again there's this problem of reductio ad absurdum: forces leading straight to financial meltdown can hardly be representative of a proper system. What you're saying sounds dangerously close to "the system worked". Or perhaps, "the system just didn't follow its own logic consistently enough".
- jteo 16y ago
  I disagree. Derivative traders provide financial instruments to hedge risk. What do angels and VCs do? Finance companies that scam online users. http://techcrunch.com/2009/11/07/horrible-things-slink-back-into-zynga/ http://techcrunch.com/2009/11/07/horrible-things-slink-back-...

by borism 16y ago

thefahim 16y ago

Very constructive.

gruseom 16y ago

I disagree. Angels and VCs make money by investing in people who build great companies. What do derivatives traders build?

arethuza 16y ago
It could be argued that derivatives traders are simply satisfying a market requirement - what about the folks who buy these things not really understanding what it is they are getting into, even though they are investment "professionals".
yummyfajitas 16y ago
Derivatives traders build ways for great companies to hedge risk. They also push the price of assets towards their correct value, allowing the price in the present to reflect information on the future.
- gruseom 16y ago
  The trouble with this argument is that it is a reductio ad absurdum after the fiasco of the last few years. It's hard to hear something like "they also push the price of assets towards their correct value" with a straight face. Has it not become painfully clear that the financial system has come to dominate the economy to a greater extent than the value it provides? http://en.wikipedia.org/wiki/File:NYUGDPFinancialShare.jpg http://en.wikipedia.org/wiki/File:NYUGDPFinancialShare.jpg And that this has been driven by the interests of those who profit personally from such a configuration, in opposition to the interests of society as a whole? http://www.thisamericanlife.org/radio-archives/episode/405/inside-job http://www.thisamericanlife.org/radio-archives/episode/405/i.... I'd say those statements are hardly controversial to anyone without a vested interest in the status quo. I grant that "hedging risk" and that other standby, "ensuring liquidity", do have value, just not to justify the existing system. The liquidity argument in particular comes off as ironic in light of the fact that trillions of public dollars provided to the financial sector in the name of opening liquidity to the general economy did no such thing.
  - yummyfajitas 16y ago
    Actually, a lack of proper derivatives did help to create the housing bubble. Until a few years ago, it was very difficult to short the housing market. It was only fairly recently that speculators such as Paulson, Magnetar and others managed to successfully speculate in the right direction. This certainly helped to bring housing prices closer to their proper level. In any case, since you feel the financial sector is too large, what do you believe is the proper size of the financial sector?
    - gruseom 16y ago
      I don't have time to study this question so my answer is useless, but to play along, I'll go with 5% or so of GDP. Why? Because the two historical periods that exceed 5% are (1) the Great Depression and (2) the 1980+ era of financialization leading to the recent crash. (I'm getting this from the Wikipedia graph I linked to.) To turn to your other point, I certainly respect what you're saying, but once again there's this problem of reductio ad absurdum: forces leading straight to financial meltdown can hardly be representative of a proper system. What you're saying sounds dangerously close to "the system worked". Or perhaps, "the system just didn't follow its own logic consistently enough".
jteo 16y ago
I disagree. Derivative traders provide financial instruments to hedge risk. What do angels and VCs do? Finance companies that scam online users. http://techcrunch.com/2009/11/07/horrible-things-slink-back-into-zynga/ http://techcrunch.com/2009/11/07/horrible-things-slink-back-...