Thursday, June 18, 2015

Fair Trade Practices?

From Der Spiegel - August 22, 2011
"... like a pack of wolves" that seeks to tear entire countries to
pieces, said Swedish Finance Minister Anders Borg. For that
reason, they should be fought "without mercy," French
 President Nicolas Sarkozy raged. Andrew Cuomo, the
 former attorney general and current governor of New York,
 once likened short-sellers to "looters after a hurricane."

Curious how the derivatives market works?  
"One might think of derivatives as a random game of online poker.
  • You don't know who your opponents are [your counterparty], 
  • you do not know if you will be paid [counterparty risk], 
  • you do not know if the game is legitimate, [lack of regulation], and 
  • your opponents are probably able to see what cards you are holding,  [market domination by large banks]. 
  • As well, you are making bets that in many instances neither you nor your opponents fully grasp [complexity of the market]. 
  • With each wager you are potentially risking not only your current assets, but your future assets as well. [leverage]. 
  • In some cases you do not know how much you are betting. 
  • Imagine as well, that you play this game every day with trillions of dollars that you do not have. 
This is the global derivatives market."
 ~ David Hague, 2014

"..., we know that the use of derivative securities played a pivotal role in the ... the financial collapse in The 2007-08 Financial Crisis."     Kristina Zucchi, CFA 
Nothing of substance has been done to mitigate the risks inherent in this unregulated industry.  Bank balance sheets, British central banker Andrew Haldane said caustically, are still "the blackest of boxes."