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> The scale of today’s derivatives market is almost too vast to comprehend. It’s measured in trillions of dollars. Traders, aided by the most sophisticated soft

> The scale of today’s derivatives market is almost too vast to comprehend. It’s measured in trillions of dollars. Traders, aided by the most sophisticated software money can buy, place bets — billions per second — on the future prices of every manner of stuff. My grandpa can’t comprehend how bitcoin has “created value out of nothing” but really the finiancial world has been doing it for ages.

KaiserPro 9y ago
Even earlier is the first bank. At first they were just a safe place in which to store your valuables (basically they were goldsmiths renting out vault space) Then someone (I think dutch) realised that most of the time people kept there cash in one place. Which meant that instead of raising money explicitly for lending, they could "double enter" the cash, which meant any deposits to the bank were lent out immediately.
- AnimalMuppet 9y ago
  I'm not an expert on such things, but I think it was earlier than the Dutch. It was the Italians, in the 1200s.
  - madengr 9y ago
    I thought it was the Knights Templar. You'd deposit your money (with them in Europe) before your pilgrimage, then redeem it later (from them in the Holyland). Kept you from getting robbed along the way. They became pretty savy with banking, and the aristocrats and church did not like that, so killed them all.
  - KaiserPro 9y ago
    Ahh, you might be right, it rings a bell
golergka 9y ago
In one case, "nothing" is decentiralized, secure and anonymous (not linked to real-life credentials) transactions, in another, it's risk management - but any way, it's far from "nothing".
snuxoll 9y ago
There are multiple types of futures and FD's, keep in mind. Options are an extremely useful tool, I just bought some AMD stock for the run up to the earnings call and sold a call with a $12 strike price for $71, it limits my gains but also limits my risk if AMD drops right back to $10 after the ER. Commodity futures give other FD's a bad name.
qeternity 9y ago
I think the average Joe does not understand fully how financial markets create value through price discovery and risk transfer. These two elements allow society to more efficiently allocate resources and engage in activity, which can (and I would argue does) create tremendous value. There is also plenty of trading that is malicious or rent seeking and provides little value to society.
JackFr 9y ago
> the finiancial world has been doing it for ages Well, not really. Financial instruments like stocks and bonds are real legal claims on the real assets of an entity. They are not creating value out of nothing, they are transferring ownership rights. Derivatives are a zero-sum game. There is no value out of nothing, the money you make is your counterparty's loss. Seignorage is what the government does when it creates dollars (or when bitcoin is created). That truly is creating money for nothing.
- tehsauce 9y ago
  >Well, not really. >Financial instruments like stocks and bonds are real legal claims on the real assets of an entity. They are not creating value out of nothing, they are transferring ownership rights. While an instrument making a claim to a real asset can't create value from nothing, it can create value from almost nothing. For example if the going price for a particular beanie baby is $100,000 a huge amount of speculative value has been created from a very small (basically nothing) real world value. In general it's poor speculation that causes problems, not necessarily the nature of the asset itself
  - JackFr 9y ago
    A beanie baby is a beanie baby. It's an asset and offers no other claims or rights. If I pay $1 for a beanie baby the manufacturer presumably captures the value of the difference between where they value labor and materials (< $1) and $1. I capture the value of the utility a beanie baby gives me (>=$1) less $1. If I then mark the beanie baby on my books as worth $1 million, because that's where I have seen other similar beanie babies trade, on my balance sheet I have captured $9,999,999 because I was able to get real property the market values at $1 million for $1. That is ludicrous, but it is real (though unrealized). Now I could sell it for the $1 million, and my gain would realized, and it would equal the difference between my cost and the (possibly irrational) utility the buyer placed on that beanie baby. That the buyer irrationally believes that a beanie baby has value beyond that of a toy, as a store of value, or a possible rising speculative asset is not prudent or wise, but it is real.
Robotbeat 9y ago
That's the secret: EVERYONE can do this. If you've written an IOU, you've created a kind of currency. Same for arcades, carnivals, etc. Any time you acquire a service or good in exchange for a promise of a service or good in the future (and that promise could also be in a tangible thing like gold, seashells, or bottles of Tide, but often it's just word of mouth), you've created a kind of currency. The real ticket comes when you can convince third parties to accept your promise and trade goods in exchange for it. But alternative currencies have a really long history, as old as society and maybe older. They tend to arise during depressions when fiat currency is hard to come by. I don't think it's by accident that Bitcoin was first published in 2008 and released in 2009, during the Great Recession. This is liquidity being popped out of the ether due to demand for more currency (in spite of pumping by the Fed). And this is why I never really bought the "infinite" deflationary story for Bitcoin: people can just start another cryptocurrency if there's actual demand for it. Of course, that doesn't take into account irrational speculation... The current ramp-up in cryptocurrencies is occurring now, during a relative economic boom. This is pro-cyclical and probably bad. It'll eventually pop, but no one knows when.

KaiserPro 9y ago

Even earlier is the first bank. At first they were just a safe place in which to store your valuables (basically they were goldsmiths renting out vault space) Then someone (I think dutch) realised that most of the time people kept there cash in one place. Which meant that instead of raising money explicitly for lending, they could "double enter" the cash, which meant any deposits to the bank were lent out immediately.

AnimalMuppet 9y ago
I'm not an expert on such things, but I think it was earlier than the Dutch. It was the Italians, in the 1200s.
- madengr 9y ago
  I thought it was the Knights Templar. You'd deposit your money (with them in Europe) before your pilgrimage, then redeem it later (from them in the Holyland). Kept you from getting robbed along the way. They became pretty savy with banking, and the aristocrats and church did not like that, so killed them all.
- KaiserPro 9y ago
  Ahh, you might be right, it rings a bell

golergka 9y ago

In one case, "nothing" is decentiralized, secure and anonymous (not linked to real-life credentials) transactions, in another, it's risk management - but any way, it's far from "nothing".

snuxoll 9y ago

There are multiple types of futures and FD's, keep in mind. Options are an extremely useful tool, I just bought some AMD stock for the run up to the earnings call and sold a call with a $12 strike price for $71, it limits my gains but also limits my risk if AMD drops right back to $10 after the ER. Commodity futures give other FD's a bad name.

qeternity 9y ago

I think the average Joe does not understand fully how financial markets create value through price discovery and risk transfer. These two elements allow society to more efficiently allocate resources and engage in activity, which can (and I would argue does) create tremendous value. There is also plenty of trading that is malicious or rent seeking and provides little value to society.

JackFr 9y ago

> the finiancial world has been doing it for ages Well, not really. Financial instruments like stocks and bonds are real legal claims on the real assets of an entity. They are not creating value out of nothing, they are transferring ownership rights. Derivatives are a zero-sum game. There is no value out of nothing, the money you make is your counterparty's loss. Seignorage is what the government does when it creates dollars (or when bitcoin is created). That truly is creating money for nothing.

tehsauce 9y ago
>Well, not really. >Financial instruments like stocks and bonds are real legal claims on the real assets of an entity. They are not creating value out of nothing, they are transferring ownership rights. While an instrument making a claim to a real asset can't create value from nothing, it can create value from almost nothing. For example if the going price for a particular beanie baby is $100,000 a huge amount of speculative value has been created from a very small (basically nothing) real world value. In general it's poor speculation that causes problems, not necessarily the nature of the asset itself
- JackFr 9y ago
  A beanie baby is a beanie baby. It's an asset and offers no other claims or rights. If I pay $1 for a beanie baby the manufacturer presumably captures the value of the difference between where they value labor and materials (< $1) and $1. I capture the value of the utility a beanie baby gives me (>=$1) less $1. If I then mark the beanie baby on my books as worth $1 million, because that's where I have seen other similar beanie babies trade, on my balance sheet I have captured $9,999,999 because I was able to get real property the market values at $1 million for $1. That is ludicrous, but it is real (though unrealized). Now I could sell it for the $1 million, and my gain would realized, and it would equal the difference between my cost and the (possibly irrational) utility the buyer placed on that beanie baby. That the buyer irrationally believes that a beanie baby has value beyond that of a toy, as a store of value, or a possible rising speculative asset is not prudent or wise, but it is real.

Robotbeat 9y ago

That's the secret: EVERYONE can do this. If you've written an IOU, you've created a kind of currency. Same for arcades, carnivals, etc. Any time you acquire a service or good in exchange for a promise of a service or good in the future (and that promise could also be in a tangible thing like gold, seashells, or bottles of Tide, but often it's just word of mouth), you've created a kind of currency. The real ticket comes when you can convince third parties to accept your promise and trade goods in exchange for it. But alternative currencies have a really long history, as old as society and maybe older. They tend to arise during depressions when fiat currency is hard to come by. I don't think it's by accident that Bitcoin was first published in 2008 and released in 2009, during the Great Recession. This is liquidity being popped out of the ether due to demand for more currency (in spite of pumping by the Fed). And this is why I never really bought the "infinite" deflationary story for Bitcoin: people can just start another cryptocurrency if there's actual demand for it. Of course, that doesn't take into account irrational speculation... The current ramp-up in cryptocurrencies is occurring now, during a relative economic boom. This is pro-cyclical and probably bad. It'll eventually pop, but no one knows when.