• Why we should care about derivatives casino
    October 04,2012

    Why we should care about derivatives casino

    The financial crisis over the last four years has brought into common parlance words we rarely, if ever, heard before: collateral debt obligations, credit default swaps, derivatives, hedge funds, private equity, quantitative easing, commodity trading futures, toxic assets, short selling — and on and on. Another word we’re hearing more of in connection with the global gambling casino that is the derivatives market is “quadrillion” — dollars that is — or $700 trillion, equivalent to 20 times the value of the total GDP of the whole planet. (The USA’s total GDP is about $15 trillion.) A quadrillion in gambling bets is hard to imagine let alone attempt to regulate. And that’s the battle that’s going on in the world of high finance. The Dodd-Frank Act, now the law of the land, has provisions to regulate the derivatives market, but it seems to be going nowhere against the enormous lobbying power of the Wall Street crap shooters.

    Why the hell should we, here in little old Vermont, be concerned with these astronomical numbers? Well, for one thing, a lot of our pension investments are affected by the derivatives market. In the way that the popping of the subprime mortgage bubble drained away a significant percentage of our state pension fund, the recklessness of the derivatives market could do the same and cut more deeply into our economy. A derivative is essentially a bet against the success or failure of an entity like a bank, and sometimes it’s another bigger, more powerful bank making the bet, with the incentive to undermine the weaker bank. All this pernicious nonsense reminds me of “Alice In Wonderland” and the Cheshire Cat: “Most everyone’s mad here! (laughs maniacally and starts to disappear) You may have noticed that I’m not all there myself!”

    Al Salzman


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