Inside Job argues that derivatives have no value of its own because its value is derived from another asset.
bump.
My understanding has always been that there are many types of derivatives some have inherent value and some do not. I have seen options used to backstop losses as a form of insurance which makes sense...there is a value on what has already been purchased and it is backstopped by a sell at a given price to someone who is willing to pay it if that price is met. Other forms of derivatives do not have such inherent value and are pure gambling on movement.
I worry they’ll throw the baby out with the bathwater just like any other time organizations and governments get involved.
If we just allowed failures to fail and got on with the vulture cleanup of the mess things would resolve themselves much more quickly. This whole thing about trying to find blame in speculation where there is none has to stop.
It is a zero sum game until the loser of said derivative contracts is asked to pony up (like AIG). If they can’t because they were leveraged 100-300 to 1, then the whole thing implodes taking the entire system down with it. Even the inventor of derivative theory has said the current usage of it is insane and a stack of cards waiting to collapse. This is why the FED will keep pumping money into the big four TBTF banks (who happen to hold $250 trillion dollars in derivatives) until they bankrupt us. None of this has been fixed since the 2008 collapse. As long as there is a counter party to keep paying them (currently the US taxpayer) they will keep leveraging it up.