frank miller

[Joseph Tracy]

Leverage means making bets/investments with a percentage of hard assets risked. The more leverage in a market the greater the potential cascade of losses in a major default/margin call , particularly if the derivatives designed as hedges default, which is what happened in 08. It covers a large swath of instruments including the CDO s  of infamy. Much of derivative trading  enables  lending and borrowing without real assets backing it, more like formulas projecting earnings. The sheer volume of activity in this market after a major meltdown of same seems folly because it is folly. A lot if it is borrowing to put off settling accounts on failed bets.  

One of the saddest failures of Obama's performance is his failure to fully back Elizabeth Warren in her attempt to increase accountability and reduce predation and abuse of consumer trust in the financial market and credit industry. 

 I would be dishonest to claim sophisticated knowledge of derivatives, bonds, short selling  etc., but  what I have done in recent years is try to get enough understanding of the language to follow financial  news and I have tried to pay attention to the people who got things right when others didn't.  There is a whole group of writers who are outside the mainstream because they focus on the discord between the investment   economy and the actual economy of sustainable and unsustainable claims on real resources, particularly energy , housing and food. Those are the ones who interest me . Nicole Foss, Richard Heinberg, Ilargi, Chris Martenson, Matt Taibbi, Jim Kunstler, Lester Brown, Wendell Berry, Bill McKibben, A.Lovins and P. Hawken, Naomi Klein, Naomi Prins.  Some of these follow wall street and daily financial news closely and  most do not. They strongly inform my thoughts on all economic matters. 





On Nov 29, 2011, at 9:01 PM, Robert Mahnke wrote:

> Imagine a poker game, and the players are betting on the game.  
> 
> Now imagine that there are a bunch of people around the game, who are not playing, but who are betting with each other on the game.  Those side bets are derivatives.  (They're derivative of the action in the game.)
> 
> There are legit reasons for businesses to want to hedge risk with derivatives.  For example, you might have own a bunch of General Electric bonds.  You want to protect yourself from the risk that GE will default on those bonds, so you buy credit default swaps, which work like insurance.  You make regular payments to whomever you're dealing with, and they agree to pay you a larger sum in the event that GE defaults on the bonds.  You've just hedged your exposure to a default by GE, at the cost of the regular payments, and with the caveat that you have some risk that the counterparty you're dealing with with fail, rendering the insurance worthless.
> 
> Or suppose you run a US business that sells lots of stuff in Europe, and you are exposed to the risk that the Euro will drop in value before you can turn your European earnings back into dollars.  You might enter into FX derivatives structured so that you will make money if the Euro drops in value and lose money if the Euro gains in value.  This isn't a credit default swap, but again you've found a way to hedge some risk, and perhaps by dealing with a party that has the opposite problem.
> 
> Not to say (not at all) that they have no downsides -- they allow financial institutions to greatly increase their leverage, with massive systemic risks. Still, they exist because they have some legitimate uses.
>  
> 
> On Tue, Nov 29, 2011 at 5:19 PM, Michael Bailey <michael.lee.bailey at gmail.com> wrote:
>  alice wellintown  wrote:
> >
> >  Also, you
> > don't know what a derivitive is. do you?
> >
> 
> I would love to read an explanation by you.  You have an interesting
> prose style.
> 
> I have read up on them a little but, because I'm not a deep thinker,
> they seem to me to be the type of thing that embodies the worst
> aspects of capitalism:
> 
> they are basically gambling (which I don't approve of)
> 
> they are a zero sum game: for every winner there's a loser
> 
> they are prone to manipulation and speculation, allowing people for a
> minimal investment to damage or even destroy companies that otherwise
> could fill human needs
> 
> they feed an effete corps of profit-takers who produce nothing, but
> whose money competes for things and services that are actually worth
> having in their own right
> 
> they produce profits disproportionate to the amount of value (if any)
> that they add - which distorts the marketplace for everything else and
> draws talented people who could be gainfully and probably more happily
> employed in ever so much more useful pastimes
> 
> 
>  how wrongheaded and stupidl am I, to think such things?
>