Stop Me Before I Vote Again

uh.. what? Futures contracts ARE derivatives. What on earth are you talking about?

uh... what? What on earth are you talking about? If you're going to argue that commodities futures are derivatives, then puts and calls are too. Yes?

Yes, puts and calls are derivatives. Options and futures are derivatives.

by "derivatives" do you mean swaps?

or just over-the-counter (OTC) derivatives as opposed to exchange traded derivatives?

Yes, puts and calls are derivatives. Options and futures are derivatives.

Yes, exactly. Anything that's derivative of the underlying asset is a derivative. But that leaves me short of an acceptable term for the derivatives of derivatives. I'm stuck there.

by "derivatives" do you mean swaps?

Possibly. I don't know. I don't know if, or how, the side bets on the side bets affected the market. I suspect they did, but I have no certain knowledge, or what was used if indeed anything was used. Hence, FWIW, my disgust with Levin, who is in a position to dig into it.

nice goin; super Al

staging this merry go round with

"bob"
proves your lewis carroll point

the intricacies of these virtual product markets defy simple modeling

i suspect
for example

the circa 08 set of
interconnected "markets "
allowed goldy sacks types
to buy hold insure and short
their own derivative products
all at once

uncle's limitless bailing bucket
constantly in mind

commodity futures
sound like "real" markets don't they ???

not paper exchanges
where mr flim torches mr flam

make it a real product
and of course
there's
all the more grand ma 's nite cap cover

and then there's the self appointed
side walk supers
take
the ardent desire
of say
doctor paul t krugula
--aka the times square terrier--
to
nullify pleb bellows
of
spec run up
in the bubblin' crude markets
last year

now that
was a marvel !!!!

to switch to hemi-beast fable mode

elmer fudd's of the academy
thinking they're
bugs bunny quick
cause they've mastered
ordinary diff equations
and have s holmes like acumen
for long chains of deduction
able to crack open cases
on minimum info
and from the prudent comforts
of their study....

well ??

only a senate clown
cavorting seltzer bottle in hand
round ring number 3
can top that for idiocy

And to clarify something, bob you have a much greater knowledge of how these things can be worked than I do. I would be grateful for any speculations or insights you have.

Owen, yeah, I was thinking of Count Krugula's disdain for people "who think it's possible to hoard the oil itself". As far as I know, no one suggested anything remotely like that.

sudden rising prices seemingly out of no where and without fundemental cause ??

hey

like the scamtric yoga
rope trick

its magic

More like strategic willful stupidity, a.k.a. the old fumble-rooskie.

Carl Levin is doing all he can to keep our insane automobile dependency off the public agenda. Hence, the problem is oil speculation, not oil demand/waste.

And, of course he's uninterested in stopping oil speculation. Doing that would deprive him of that excuse when the next oil shock comes.

md
"More like strategic willful stupidity..."

agreed

most well compensated clowns
aren't clowns
they only play them
in the circus
or as in this case
on capital hill

btw

remember dawson
lest you get too big for your speedo

there's pictures of u too
in the house of paine
gallery of shame

krugman had to wait for oil to be overflowing from a bucket in his closet before he could be REALLY sure demand wasn't driving prices

that particular example should be kept in mind when reading his political work

sorry for being a bit grumpy... I need to remember not to post first thing in the morning.

I think what you are getting at is best phrased as Over-The-Counter derivatives, or more aptly, Under-The-Table derivatives (side bets). There are derivatives of derivatives (options on futures) that are exchange traded, which I don't have a problem with. It's the OTC stuff that gets greazy.

My opinion is that there is no real problem with derivatives, so long as they are standardized and traded on a central exchange, with adequate transparency (figures on who is buying what, compiled and published in a timely manner) and strict position limits to stop any party from cornering the market, or manipulating it in the short term. The problem is that a) there are huge side bets being made in the OTC market that are not disclosed publicly and b) there are exchanges operating in the United States, trading US contracts (ICE, owned partially by Goldman Sachs and operated out of Atlanta) using a loophole that allows them to be regulated by the authorities in London, UK, who are appallingly lax (the "London Loophole").

In terms of Krugman's senior moment last year, I agree that he was wrong. I'm sure that the OTC frenzy played some part, but I also think that there was a speculative bubble in plain sight in the exchange-traded futures. That's the scenario Krugman thought could not possibly happen, by definition. The problem is that Krugman doesn't even know the formula for pricing a futures contract, and based all of his reasoning on a faulty formula. This went unnoticed by every single academic economist who pores over his blog looking to prove him wrong. He just had no idea what he was talking about, and this became apparent to all within a couple weeks.

"that particular example should be kept in mind when reading his political work"
hap i agree

he's naive as linebacker's ass hole

"My opinion is that there is no real problem with derivatives, so long as they are standardized and traded on a central exchange, with adequate transparency (figures on who is buying what, compiled and published in a timely manner) and strict position limits to stop any party from cornering the market, or manipulating it in the short term"

bob
who cares
let em rip their own system as many new ass holes as time
ingenuity and larceny permit

in and of itself
all these laputa paper markets
serve no necessary function
not
in the "real" production system

hey
give em all the same rights and privileges
and taxe helters and endogenously generated
credit lines u 'd give any other
pirate republic

just remember
to unhook them from our real economy

what of our poor rentiers'
innocent wealth holdings paine ???

frankly if they blow up
a bunch of 401k plans
a bunch of university and foundation endowments
i say
more holy ghost power to em

-------------
why these sky fastened
hanging garden
pink elephant markets
hold such
interest tocertain of us
anti cap=show types
is a puzzle to me

scheinvert follies
come and go

when they'll next impact the real system
like a returning comet
is not worth predicting
only preventing
and that's fairly simple
once the mind is put to it

step one
chase the corporate locksmiths
from the people's credit temple

step two
shoot the econ con phd's

step three
there is no step three

"in and of itself
all these laputa paper markets
serve no necessary function
not
in the "real" production system"

I disagree. A properly functioning, centralized futures market with published prices prevents the localized hoarding and gouging of a Pere Goriot from sabotaging real production. It also stabilizes prices, allowing a longer horizon for planning projects and gains in efficiency. I think you are just looking at the problems with the 'new' system, without taking into account the problems that it solved.

Now if you have disfunction in futures markets, as we do, those arguments no longer hold, but I think that this is an argument for fixing the markets rather than rejoicing in the inevitable catastrophes that are produced by a corrupted system. It's the little guy that always gets screwed in the end, not the well-heeled speculators, even if they do lose a billion or two. Who's worse off: Joe Trucker from Ohio who lost his job and his home, or T. Boone Pickens who lost a bundle, but has many more stashed away?

"hey
give em all the same rights and privileges
and taxe helters and endogenously generated
credit lines u 'd give any other
pirate republic

just remember
to unhook them from our real economy"

I don't think that there is any way to "unhook" commodities trading from the real economy. It has been part of the real economy for as long as we have had exchange of goods. Agricultural futures contracts go all the way back to ancient times, and were among the first financial instruments created (long before stocks, anyway). You can either have it out in the open on a futures exchange, where the public can see what passes for a fair price, or have a system where asymmetrical information and rudimentary arbitrage opportunities are continuously exploited by the powerful, while regular people get taken to the cleaners. I guess we do have the worst of both worlds at the moment, but I still think that futures markets can be beneficial to the real economy.

To my eye, much of the looseness and cheating in the financial markets comes from the basic maldistribution of income in this investors-first system. If we instead ran the joint like we did in WWII -- planning the big priorities, conserving resources, employing all employable labor, forbidding waste, then markets of all kinds could be used as servants, rather than masters.

Our problem now is that there's so much capital looking for a new cycle, and so few reasons to send it back into new production of useful goods and services, that the "traders" have (and get) to make up the wildest shit and call it "investment." Hell, even housing got sucked into this bubble cauldron.

If capital were properly scarce, there'd be no room for most of these third-order shenanigans.

Bob

The real production system can be financed by
Uncle flying solo
As md implies with his reference to the arsenal of democracy model

As to spec exchanges
Go ahead knock yourself out

But uncle keeps
The credit lines strictly non public

I know laputa likes to claim its management of the commanding heights is best of all possible ways
Market failure in paper spec is endemic

The literature could not be clearer on this

As to historic pedigree
Gambling goes back even further

Socially
Beneficial price and supply
risk Insurance and hedging functions
Require info
No. Open market
Provides

Plans produce
Markets reward

"but I also think that there was a speculative bubble in plain sight in the exchange-traded futures."

You betcha Bob, and it had begun to become evident so early as 2004-05...all Krugman had to do was look into the modern oil price regime to discover that it had become centered in the futures mkts...a real history which was simply ignored in favor of failed theory.
Or he might have paid attention to what commodity trading desks had begun publishing, w/titles such as 'beyond fundamentals'.