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That's an intelligent comment. "Some derivatives might help brick-and-mortar production happen but a look at the details of the financial crisis will reveal th

by TriinT 17y ago

That's an intelligent comment. "Some derivatives might help brick-and-mortar production happen but a look at the details of the financial crisis will reveal that the majority of derivative investments have involved a casino-like approach to investment which bred exponentially increasing systemic risk. Some derivatives can be a necessary part of healthy economic activity but that doesn't justify the most recent approaches any more than the fact that some hospitals stock heroin justifies becoming a junkie." What could be the solution? If one destroys a market, one creates a black-market (quoting Churchill). If one imposes heavier and stricter regulation, there's really no guarantee that it will be enforced. There will always be loopholes to be exploited. The one solution would be economic totalitarianism (?)

joe_the_user 17y ago
What could be the solution? If one destroys a market, one creates a black-market (quoting Churchill). I know I started the heroin-derivatives comparison but continuing it in this direction is fallacious. Speculative derivative contracts are like heroin in the sense of being socially destructive but they aren't like heroin, cigarettes or cocaine in the sense that they can be traded on street corners if they are not sold in corner stores. Derivative markets depend on the legality of the contracts which are written, indeed they depend on large, public entities guaranteeing them. Consider: it is no longer legal to take out a large life insurance policy on someone you have no other relationship with - the murders got to be a bit annoying. There is no noticeable black market in such insurance policies either. Yet insurance for those who can show a need for it is still legal and available. Regulating speculative derivatives would have relatively simple mechanics. However, it would also require that this society adopt a different regulatory paradigm than the present belief that Casino-like-speculation benefits the economy and society as a whole. This dovetails into the things Paul Krugman said recently.

by TriinT 17y ago

joe_the_user 17y ago

What could be the solution? If one destroys a market, one creates a black-market (quoting Churchill). I know I started the heroin-derivatives comparison but continuing it in this direction is fallacious. Speculative derivative contracts are like heroin in the sense of being socially destructive but they aren't like heroin, cigarettes or cocaine in the sense that they can be traded on street corners if they are not sold in corner stores. Derivative markets depend on the legality of the contracts which are written, indeed they depend on large, public entities guaranteeing them. Consider: it is no longer legal to take out a large life insurance policy on someone you have no other relationship with - the murders got to be a bit annoying. There is no noticeable black market in such insurance policies either. Yet insurance for those who can show a need for it is still legal and available. Regulating speculative derivatives would have relatively simple mechanics. However, it would also require that this society adopt a different regulatory paradigm than the present belief that Casino-like-speculation benefits the economy and society as a whole. This dovetails into the things Paul Krugman said recently.