Re: An essay on economic basis of bourgeois risk and gambling culture - parasitism as derivatives, options, swaps, hedge funds etc.

[Marvin Gandall <marvgandall@xxxxxxxxxx>]

I didn't ask the question to be provocative. Someone raised it with me in a
discussion. Your answer seems to be "maybe they work for hedging purposes,
but they still represent a potential source of catastrophic instability".
That's essentially what I replied, wondering whether I'd missed any
"intrinsic" arguments against their being efficient hedges, which might have
been more persuasive. Anyway, don't sweat it;there are more important
issues, but thanks for replying...

Marv G

----- Original Message -----
From: "Sabri Oncu" <soncu@xxxxxxxxxxx>
To: <PEN-L@xxxxxxxxxxxxxxxx>
Sent: Saturday, March 13, 2004 12:11 AM
Subject: Re: [PEN-L] An essay on economic basis of bourgeois risk and
gambling culture - parasitism as derivatives, options, swaps, hedge funds
etc.


> Marvin:
>
> > Sabri: How would you answer the argument that most
> > derivatives are used for hedging operations and are
> > therefore a source of stability for the system?
>
> Dear Marvin,
>
> I was tempted to open up with the following:
>
> "Are they? I did not know this!"
>
> But if I do that you may get the impression that I am
> attacking you. But no! Even if I opened up like that,
> my intention wouldn't have been to attack you. It
> would have been to attack the standard finance text
> books which claim the above.
>
> Those books are not only based on unreasonable
> "rationality" assumptions but also they ignore the
> effects of size. Soros was able to attack the UK
> government and beat it when he bet against the pound
> but I don't think even he has the ability to bet
> against the US market. The US financial market is a
> monster against which no one has the ability to bet.
>
> And that is the problem. Controlled chaos is fine as
> long as those who are at the reigns have the ability
> to pull them. But if the horses go crazy, it does not
> matter how good a rider you are. They decide where
> they want to go and they may even choose to jump of a
> cliff.
>
> There are trillions of dollars worth of derivatives
> out there with no connection to neither the real
> economy nor the "money supply". Anyone create money in
> these markets by signing derivatives contracts, as
> long as they have the credibility to sell them.
>
> This global gambling casino grew so big that none of
> the "owners", including the US Treasury and the FED,
> really own this casino anymore.
>
> It became uncontrollably chaotic despite denials of
> the alleged owners.
>
> And the casino always wins, and if nobody owns the
> casino, everybody loses, sooner or later.
>
> Best,
>
> Sabri
>