>There's no proof that hedges really do hedge individual risk, and
A hedge is simply a swap of risk; by definition they "really do" what they say they do. I'm not sure what you're getting at here ...
>they certainly have done nothing to reduce systemic instability.
They reduce it in one direction; the fact that some speculators use these products to _increase leverage_ that may undo or even reverse the systemic instability I think is secondary to Robert's point and may even wipe our your first statement: in fact individual risk is the most important aspect of a hedge. A hedge is fairly unique in the world of transactions: both sides appear to gain.
>of risks he's talking about are, unlike exchange-traded futures & options,
>impossible to standardize, and involve extreme customization, which means
>complicated pricing that will almost certainly to be the seller's hidden
Oh, that's just silly. The *vast* majority (95%+?) of derivatives traded are off-exchange -- just because the exchanges have found a few items that can be standardized doesn't mean it's not useful to do custom derivative contracts.
He's realy just talking about "mass customization" -- which is certainly big on the trend-watch. You *can* get an insurance company to write you a policy on just about anything; the question, as always, is at what price? I keep coming back to this example, but peach crop insurance is surely the best recent example of this kind of thing. Does the cost of all the policies add up to more than the aggregate in claims processed? Sure. So there's a profit there for the insurance company. But does that make it not useful to an individual peach farmer trying to lay off the risk of catastrophy? No way!
>Oil futures trade on the NY Mercantile Exchange, not the CBOE.
Oh, and services like E-Loan *aren't* more competitive than traditional mortgage brokers. I consistently found better deals from brokers than from both E-Loan and Quicken's over the last six months or so of mortgage shopping. Don't believe the hype.