The problem with derivatives is not some guy trading Vanilla calls,its the over the counter deals which are very often naked. An un-hedged position is good and profitable if your bet is working out, however if it is not working out you might destroy your company, and your counter-party. The only way to stop that is to make sure that you have equity to cover all your liabilities on all your positions, NO MATTER where the underling asset goes. The only way to enforce that is through government regulation by SEC. Obviously this regulation should only kick in when the size of deals is large enough to have adverse effect on the US Economy, some small time hedge fund with 50Mil under management should not be bothered.
This is where capitalism fails: Financial Firms don’t care about risk management. Cause what’s the worst that can happen? If they are large enough they get bailed-out,if not it has catastrophic effect on the whole World economy. A small firm if it goes bankrupt - big deal the manager still gets his fees and bonuses. Risk management cost money,more risk you take more money potentially you can make. Thus you need an outside party to control the catastrophic risk for large firms and for economy as a whole.
So because Bush and Obama believe in bailouts my industry needs greater regulation? Whatever. You are using socialism as an excuse for more socialism. We know where that ends up.
So you actually believe the bailouts “saved” the global economy? That doesn’t sound like Freeper material to me.
And so what if an unhedged position destroys your company and your counterparty? Who cares? I frankly don’t care that businesses fail everyday. If you want a business to not fail then look to North Korea. Businesses never fail there.