DionysusToast
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For those not in the know. My opinion is that Wall St exists for much the same reason as a casino and makes money in much the same way. Investors of all types put money in and Wall St skims itself a fee/spread each time they do that.
Now I'd like to focus on derivatives, especially those commodity based derivatives. Is there actually a reason for their existence ? Are they not just another means to suck money out of an economy that doesn't need derivatives in the first place ?
The story goes that derivatives help buyers and sellers guarantee prices and avoid the pitfalls of price volatility. The questions you have to ask is
1) does this work ?
2) Are prices less volatile with commodity derivatives than without them ?
Of course, the exchanges benefit from volatility. Volatility entices people to trade and incurs fees. Not only that but there are literally billions of dollars in margin kept in escrow by the exchanges on which they earn interest. From the exchanges point of view, it makes a lot of sense to have derivatives and for those derivatives to be volatile. Does it really make sense for the rest of us ? Isn't hedging just a Wall St invention that tells us we are being wise to pay more fees & lose money to mitigate risk ?
What about from a corn buyers point of view ? He can buy a corn contract and when it goes down, he can pat himself on the back that although he didn't need the derivative, he did in fact insure himself against rising prices. Somehow he's been convinced that losing money on derivatives is good for business. The thing is, would the prices have been that unstable anyway - or are the derivatives markets and the speculation it attracts causing the volatility ? Oil anyone ?
There are even derivatives on - call minutes used, the weather (degree day indices), clean air days etc. is this anything but pure gambling on the weather ? What purpose really is the S&P500 futures ?
Don't even get me started on Cap and Trade...
So - do derivatives serve a purpose ? I don't mean their stated purpose, I mean do they actually do what they say they do ?
And the big question "What does this have to do with the price of onions ?"
Now I'd like to focus on derivatives, especially those commodity based derivatives. Is there actually a reason for their existence ? Are they not just another means to suck money out of an economy that doesn't need derivatives in the first place ?
The story goes that derivatives help buyers and sellers guarantee prices and avoid the pitfalls of price volatility. The questions you have to ask is
1) does this work ?
2) Are prices less volatile with commodity derivatives than without them ?
Of course, the exchanges benefit from volatility. Volatility entices people to trade and incurs fees. Not only that but there are literally billions of dollars in margin kept in escrow by the exchanges on which they earn interest. From the exchanges point of view, it makes a lot of sense to have derivatives and for those derivatives to be volatile. Does it really make sense for the rest of us ? Isn't hedging just a Wall St invention that tells us we are being wise to pay more fees & lose money to mitigate risk ?
What about from a corn buyers point of view ? He can buy a corn contract and when it goes down, he can pat himself on the back that although he didn't need the derivative, he did in fact insure himself against rising prices. Somehow he's been convinced that losing money on derivatives is good for business. The thing is, would the prices have been that unstable anyway - or are the derivatives markets and the speculation it attracts causing the volatility ? Oil anyone ?
There are even derivatives on - call minutes used, the weather (degree day indices), clean air days etc. is this anything but pure gambling on the weather ? What purpose really is the S&P500 futures ?
Don't even get me started on Cap and Trade...
So - do derivatives serve a purpose ? I don't mean their stated purpose, I mean do they actually do what they say they do ?
And the big question "What does this have to do with the price of onions ?"