What nonsense. Derivatives have been a way for JP Morgan, Citibank, Goldman SUCKS and B of A to offload their crap into our pants. We bail them out of their stupidity and burden our kids with it and now, a year later, record bonuses get paid and we STILL carry the cost.
They used to do this stuff in the dead of the night - now they do it right in front of us and they rub our noses in it.
Derivatives are a way to loot your own company for stratospheric bonuses when you know the underlying, most notoriously subprime mortgages, is crap. The AIG story is an example.
Derivatives enable a party (buisness) to self-delude its mind to believe their losses are covered, so they can gamble with other peoples money without feeling any guilt, knowing that the ‘insurance’ covers essentially nothing. It allows the counterparty (AIG) to sell ‘coverage’ which it cannot possibly pay. AIG has in excess of 1 trillion in ‘derivitives’ (notional value). When the claim comes in, as it did from Lehmans, AIG simply said we fold our tent....we cannot cover the claim......So unless the Government wants to gamble the entire economy on our failure and the reaction it is sure to set off, and pay our bill, we will expect a check cut from Treasury to AIG. Good day.