Some fundamentals of derivatives.

[ivanm]

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The following link points to a large and complex article, but once you get past the opening shots by the author hopefully it will help some of you who are interested in knowing more about derivatives and the risks involved. It is long and takes patience, but the latter parts of the article are worth waiting to read.

I used to tinker around with commodity and futures contracts, and call options. And I lost a bundle in just a few months. A word of experience, don't risk anything in the market that you cannot afford to lose.

The article doesn't really connect the derivative problem to the FRS but it is good groundwork for knowing as one pursues the matter.
 
Sadly, the risks and the losses impact a lot of everyday homeowners and ordinary workers who just want peace of mind and a chance to chase the American dream.  
 
http://www.safehaven.com/article/4096/the-coming-disaster-in-the-derivatives-market

[johnhp]

Didn't we really learn all we needed to know about these financial instruments back in 2007?

[ivanm]

Didn't we really learn all we needed to know about these financial instruments back in 2007?

What are you referring to?

[johnhp]

What are you referring to?

Really?  You have not heard of this?

[vel]

I do quite well playing options. It's pretty simple, actually. You simply have to understand the risk.

What's wrong with you Ivan?

[ivanm]

Really?  You have not heard of this?

Is that the best you can do?  If not, then don't bother with the snide remarks?
I asked you a sincere question and this is what I get.  I might have expected it.

[ivanm]

Didn't we really learn all we needed to know about these financial instruments back in 2007?

How much did "we" learn of the details involved? That was the intent of my post, to enlighten the ordinary people, not the know it alls.

[johnhp]

How much did "we" learn of the details involved? That was the intent of my post, to enlighten the ordinary people, not the know it alls.

Piffle and poppycock.

[ivanm]

Piffle and poppycock.

I have learned enough from reading the article to see that placing limitations on futures contracts, options, and such would help to control derivative madness.  

If derivatives are being made under the table so to speak then the thing to do is to prohibit derivatives that are not registered or traded on a regulated exchange.
They seem to serve a legitimate purpose, but the abuse is what is giving the financial system heartburn.

By requiring that all derivatives be a matter of public record then the authorities would have a better handle on what is going on.  When brokerage houses and investment banks engage in questionable activities they in a sense are usurping the public trust in the financial system.

[vel]

I have learned enough from reading the article to see that placing limitations on futures contracts, options, and such would help to control derivative madness.   Now if that is piffle and poppycock then so be it.

There is actually a field of expertise nowadays called "Financial Engineer" whose job it is to concoct new derivatives. You're so busy being immersed in your prejudices and angst that you're missing the bigger picture. Our problem is not derivatives, per se. Our problem is that we have to restore balance to our economy.

[ivanm]

There is actually a field of expertise nowadays called "Financial Engineer" whose job it is to concoct new derivatives. You're so busy being immersed in your prejudices and angst that you're missing the bigger picture. Our problem is not derivatives, per se. Our problem is that we have to restore balance to our economy.

Talking down to me won't improve your standing at this forum. 

How do we restore balance to our economy, in your opinion?

[vel]

Talking down to me won't improve your standing at this forum. 

Inferiority complex much?

How do we restore balance to our economy, in your opinion?

A person of at least normal intelligence would have understood that we were talking about the banking industry. Are you aware that the banking industry has grown to 40% of our economy? Are you aware that our best and brightest are flocking to the banking industry?

Are you aware of anything?

[lucy]

The banking industry is going the way of the dinosaurs right now....the derivatives markets are a good way to bring the whole enchilada down if allowed to exist. How much is it now? Total derivatives in the trillions of dollars...seriously, this is a problem.

There are very few solvent banks. Almost all are overleveraged..worldwide..This would help usher in a world-wide central banking administration, though and perhaps a world-wide currency. There are calls for this from major institutions, even Goldman-Sachs and the Vatican among others.

Should be interesting.

[vel]

The banking industry is going the way of the dinosaurs right now....

I don't see how that's going to happen, but we ought to be reforming it.

[ivanm]

The banking industry is going the way of the dinosaurs right now....the derivatives markets are a good way to bring the whole enchilada down if allowed to exist. How much is it now? Total derivatives in the trillions of dollars...seriously, this is a problem.

There are very few solvent banks. Almost all are overleveraged..worldwide..This would help usher in a world-wide central banking administration, though and perhaps a world-wide currency. There are calls for this from major institutions, even Goldman-Sachs and the Vatican among others.

Should be interesting.

Goldman Sachs, yeah right, a real role model of virtue.

Derivatives serve a useful purpose.  They do need to be controlled better.