"The wealthy, not only by private fraud but also by common laws, do every day pluck and snatch away from the people some part of their daily living. Therefore, when I consider and weigh in my mind these commonwealths which nowadays do flourish, I perceive nothing but a certain conspiracy of rich men in procuring their own commodities under the name and authority of the commonwealth.

They invent and devise all means and crafts, first how to keep safely without fear of losing that which they have unjustly gathered together, and next how to hire and abuse the work and labor of the people for as little money and effort as possible."

Thomas More, Utopia

Saturday, October 11, 2008

Bankers Unchained

I recently stumbled upon the following essay by Rowan Wolf over at Cyrano’s Journal (Thomas Paine’s Corner) and, for the layman, it is by far the most assessable description I’ve found to date on the derivatives beast that threatens to swallow us whole. Of course this is all made possible by “our” elected representatives who would have us sit on the monster’s dinner plate in place of the Wall Street hustlers who nurtured and fed it.

[All credit to the great Elaine Meinel Supkis for this link]

The Anatomy of a Bubble

Until recently, most people had never even heard of derivatives; but in terms of money traded, these investments represent the biggest financial market in the world. Derivatives are financial instruments that have no intrinsic value but derive their value from something else. Basically, they are just bets. You can “hedge your bet” that something you own will go up by placing a side bet that it will go down. “Hedge funds” hedge bets in the derivatives market. Bets can be placed on anything, from the price of tea in China to the movements of specific markets.

“The point everyone misses,” wrote economist Robert Chapman a decade ago, “is that buying derivatives is not investing. It is gambling, insurance and high stakes bookmaking. Derivatives create nothing.” 1. They not only create nothing, but they serve to enrich non-producers at the expense of the people who do create real goods and services. In congressional hearings in the early 1990s, derivatives trading was challenged as being an illegal form of gambling. But the practice was legitimized by Fed Chairman Alan Greenspan, who not only lent legal and regulatory support to the trade but actively promoted derivatives as a way to improve “risk management.” Partly, this was to boost the flagging profits of the banks; and at the larger banks and dealers, it worked. But the cost was an increase in risk to the financial system as a whole.

2. Since then, derivative trades have grown exponentially, until now they are larger than the entire global economy. The Bank for International Settlements recently reported that total derivatives trades exceeded one quadrillion dollars - that’s 1,000 trillion dollars. 3. How is that figure even possible? The gross domestic product of all the countries in the world is only about 60 trillion dollars. The answer is that gamblers can bet as much as they want. They can bet money they don’t have, and that is where the huge increase in risk comes in...

The rest is worth reading in full.

6 comments:

Rue St. Michel said...

Hi Coldie! Happy Monday!

Anonymous said...

Coldie and Rue-y,

I neglected to mention this past Thursday it was the 41st anniversary of the CIA-mandated murder of Che Guevara. A great socialist leader!!

"leftisthebest"

Coldtype said...

Happy Genocide Appreciation Day Rue. So many died so that we may prosper. Do you think the good Cristobal Colon is in heaven?

The spirit of Che still lives Lefty and what he died for is now resurgent throughout Latin America. The utter bankruptcy of what is essentially state capitalism (as practiced in the US & UK) has only enhanced the cause.

tony starks said...

Read Blowback by Stephen Kizer. He mentions this incident.

tony starks said...

correction overthrow by stephen kizer speaks bout Che

Coldtype said...

I've heard a great deal about that book. I'll add it to my list.