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You're seriously attempting to imply that there were no loans/lending of money before 1993 (when the derivatives markets became a 'thing')? Or are you just tal

You're seriously attempting to imply that there were no loans/lending of money before 1993 (when the derivatives markets became a 'thing')? Or are you just talking about the financial sector in general (and even so there were loans long before that.) Wall St. does not exist so people can get loans to purchase houses/cars... You may be missing some points about loans vs trading here...

gfodor 13y ago
You're seriously attempting to imply that there is no value provided by a highly liquid and efficient derivatives market? I'm not going to say these people are earning an amount commensurate to the value they provide to society, but pretending that they are just running a casino is equally naive.
- ItendToDisagree 13y ago
  I would say they provide little to no value to the average person no. Please clarify what they provide to society at large (meaning most people and not just large portfolios or predatory credit companies)? Greater security and insulation against bad investments? (which to be clear the vast majority of people do not have enough money to make in the first place.) Seems a lot like playing odds at a Casino, to use your example, to me. And your edit is valid they do not provide the value (though there may be some, if little) that their millions of dollars in bonuses/salary would imply.
  - aianus 13y ago
    They make it so the interest on your mortgage is 3% instead of maybe 3.5%. That's a lot of money that you and many other normal people get to save because they do the work of connecting you to institutional investors via packaging your debt. They might take a cut and it may look big in nominal terms but barring fraud everyone is better off.
    - ItendToDisagree 13y ago
      Actually that has shown not to be true over and over throughout the history of the derivatives trading market. Nominally and in a perfect world that would be true. But as we have seen that is not the functional reality. It keeps happening that derivatives are used to hide risk rather than actually predict or insulate against it. To quote a famous politician: "There's an old saying in Tennessee—I know it's in Texas, probably in Tennessee—that says, 'Fool me once, shame on...shame on you. Fool me — you can't get fooled again.'" And to quote a head of a self-regulatory body in charge of such things: In the context of a 2010 examination of the ICE Trust, an industry self-regulatory body, Gary Gensler, the chairman of the Commodity Futures Trading Commission which regulates most derivatives, was quoted saying that the derivatives marketplace as it functions now "adds up to higher costs to all Americans."
    - deleted 13y ago
      [deleted]
      - ItendToDisagree 13y ago
        What country? I'd like that sort of interest rate! :)
        iaskwhy 13y ago
        Sorry, I deleted my comment. I decided to explain here why because it's sort of funny! So I have been helping a friend of mine with all the math around his new adventure, buying his first flat. Usually he just gives me the numbers directly from the bank and I work with them without questioning much because, although I have worked in finance before, I know jack about mortgages. Still, I had the bank simulation with myself so I deeply believed 0.16%, the interest the bank put on his simulation, would be around the same for everybody else. As you can guess, it's not even close. That's why I deleted my previous comment, sorry. So why did he have such a nice interest rate? Well, it seems like there's a bunch of discounts on the banking system in Europe for mortgages. For example, there's a really big discount for disabled people, they will only pay, on a variable rate, 65% of the 3m EURIBOR thus 0.16%. No spread whatsoever. Interesting, isn't it?
  - gfodor 13y ago
    "large portfolios" include mutual funds and pension funds. Ie, where most peoples' retirement funds are. These funds benefit from derivatives to reduce volatility and risk.
jaredsohn 13y ago
Derivatives help determine prices, moves risk to those who want it, increase trade volume, control speculation, and create educated predictions for others to observe. http://en.wikipedia.org/wiki/Derivative_(finance)#Economic_function_of_the_derivative_market http://en.wikipedia.org/wiki/Derivative_(finance)#Economic_f...
- ItendToDisagree 13y ago
  Exactly, they do not provide loans, or determine availability of said loans (beyond insulating risk allowing an institution to make more risky investments which as we've seen can be a catastrophic practice). I would venture that none of these things benefit the 'average' person. Not saying its a bad thing, but the great amount of money dumped into this area of the economy, does not equate to their usefulness to society. Edit: Actually the next section in the link you provided shows exactly how they can be a great detriment to economic stability including the recent AIG fiasco. the use of derivatives to conceal credit risk from third parties while protecting derivative counterparties contributed to the financial crisis of 2008 in the United States.
  - jaredsohn 13y ago
    If you're an average person who was going to lose your home, derivatives enabled the bank to give you a loan. Therefore, derivatives have provided value to average people. However, the 2008 financial crisis showed that when tested, derivatives don't provide much of the value that they were supposed to (shifting risk to those who want it and will quietly suffer the consequences of failure without having spillover effects on the rest of the economy) which essentially retcons away much of that value.
    - ItendToDisagree 13y ago
      I fully agree. With the exception that the derivatives market allowed them to make a more risky loan to you (IE one you may likely have not been able to pay off and they knew it). I would say the value to society at large is very observable as a negative. Getting a low percentage loan that is unstable or even totally illusory is not value. At least not in my opinion.
deleted 13y ago
[deleted]

gfodor 13y ago

You're seriously attempting to imply that there is no value provided by a highly liquid and efficient derivatives market? I'm not going to say these people are earning an amount commensurate to the value they provide to society, but pretending that they are just running a casino is equally naive.

ItendToDisagree 13y ago
I would say they provide little to no value to the average person no. Please clarify what they provide to society at large (meaning most people and not just large portfolios or predatory credit companies)? Greater security and insulation against bad investments? (which to be clear the vast majority of people do not have enough money to make in the first place.) Seems a lot like playing odds at a Casino, to use your example, to me. And your edit is valid they do not provide the value (though there may be some, if little) that their millions of dollars in bonuses/salary would imply.
- aianus 13y ago
  They make it so the interest on your mortgage is 3% instead of maybe 3.5%. That's a lot of money that you and many other normal people get to save because they do the work of connecting you to institutional investors via packaging your debt. They might take a cut and it may look big in nominal terms but barring fraud everyone is better off.
  - ItendToDisagree 13y ago
    Actually that has shown not to be true over and over throughout the history of the derivatives trading market. Nominally and in a perfect world that would be true. But as we have seen that is not the functional reality. It keeps happening that derivatives are used to hide risk rather than actually predict or insulate against it. To quote a famous politician: "There's an old saying in Tennessee—I know it's in Texas, probably in Tennessee—that says, 'Fool me once, shame on...shame on you. Fool me — you can't get fooled again.'" And to quote a head of a self-regulatory body in charge of such things: In the context of a 2010 examination of the ICE Trust, an industry self-regulatory body, Gary Gensler, the chairman of the Commodity Futures Trading Commission which regulates most derivatives, was quoted saying that the derivatives marketplace as it functions now "adds up to higher costs to all Americans."
  - deleted 13y ago
    [deleted]
    - ItendToDisagree 13y ago
      What country? I'd like that sort of interest rate! :)
      - iaskwhy 13y ago
        Sorry, I deleted my comment. I decided to explain here why because it's sort of funny! So I have been helping a friend of mine with all the math around his new adventure, buying his first flat. Usually he just gives me the numbers directly from the bank and I work with them without questioning much because, although I have worked in finance before, I know jack about mortgages. Still, I had the bank simulation with myself so I deeply believed 0.16%, the interest the bank put on his simulation, would be around the same for everybody else. As you can guess, it's not even close. That's why I deleted my previous comment, sorry. So why did he have such a nice interest rate? Well, it seems like there's a bunch of discounts on the banking system in Europe for mortgages. For example, there's a really big discount for disabled people, they will only pay, on a variable rate, 65% of the 3m EURIBOR thus 0.16%. No spread whatsoever. Interesting, isn't it?
- gfodor 13y ago
  "large portfolios" include mutual funds and pension funds. Ie, where most peoples' retirement funds are. These funds benefit from derivatives to reduce volatility and risk.

jaredsohn 13y ago

Derivatives help determine prices, moves risk to those who want it, increase trade volume, control speculation, and create educated predictions for others to observe. http://en.wikipedia.org/wiki/Derivative_(finance)#Economic_function_of_the_derivative_market http://en.wikipedia.org/wiki/Derivative_(finance)#Economic_f...

ItendToDisagree 13y ago
Exactly, they do not provide loans, or determine availability of said loans (beyond insulating risk allowing an institution to make more risky investments which as we've seen can be a catastrophic practice). I would venture that none of these things benefit the 'average' person. Not saying its a bad thing, but the great amount of money dumped into this area of the economy, does not equate to their usefulness to society. Edit: Actually the next section in the link you provided shows exactly how they can be a great detriment to economic stability including the recent AIG fiasco. the use of derivatives to conceal credit risk from third parties while protecting derivative counterparties contributed to the financial crisis of 2008 in the United States.
- jaredsohn 13y ago
  If you're an average person who was going to lose your home, derivatives enabled the bank to give you a loan. Therefore, derivatives have provided value to average people. However, the 2008 financial crisis showed that when tested, derivatives don't provide much of the value that they were supposed to (shifting risk to those who want it and will quietly suffer the consequences of failure without having spillover effects on the rest of the economy) which essentially retcons away much of that value.
  - ItendToDisagree 13y ago
    I fully agree. With the exception that the derivatives market allowed them to make a more risky loan to you (IE one you may likely have not been able to pay off and they knew it). I would say the value to society at large is very observable as a negative. Getting a low percentage loan that is unstable or even totally illusory is not value. At least not in my opinion.

deleted 13y ago

[deleted]