[lbo-talk] Refco's house of cards...

Paul paul_ at igc.org
Sat Oct 15 10:37:14 PDT 2005


Right. I wasn't saying that activities like commodity trading emerged during the last 30 years. Rather I was saying (or at least trying to) that most of Refco's business is of the type that has emerged (exploded) over the last 30 years (apologies that my wording wasn't clear enough). And I do think this is relevant -- the cheating is part of the 'spirit of the times'.

Don't you think this vast explosion owes itself - in very large part - to the opportunities to avoid profit-reducing regulation and taxation? Sure there IS an element of "legitimate" hedging against true business risk (outside the vast hedging required to make the accounts look right for the regulators, shift categories of profit for tax reduction, etc) but has this "need" suddenly exploded in the last 30 years?

And yes there is certainly the establishment of these instruments as an item of speculation. But these are not Rembrandt paintings, luxury homes or even pretty tulips. Eliminate the regulatory and tax advantages and what do you think will happen to the speculative market? Partly the speculative market is a speculation on short and long run changes in the value of these tax and regulatory advantages as other things change. Partly it is a long run tulip mania. (Plus a little bit of speculation in the change in the value in hedging against true business risk.)

Paul

At 11:40 AM 10/15/2005 -0400, you wrote:
>Paul wrote:
>
>>Refco is a "trading firm" that deals with futures, derivatives and
>>commodities - mostly areas that were allowed to emerge since the rise of
>>neo-liberalism, with the precise intent of bypassing regulations and
>>limiting taxation.
>
>That's an exaggeration. Commodities have been around forever, so I'm
>guessing you mean commodity futures. And futures are a kind of derivative,
>so you're talking about derivatives in general. Certainly derivatives have
>exploded in recent decades, but the instruments themselves have been
>around for centuries. The Chicago Mercantile Exchange was founded in 1898;
>the Chicago Board of Trade in 1848. Bypassing regulations and limiting
>taxation are partial explanations for that growth, of course, but that's
>not the whole story (hi Carrol!). They're also used to hedge risk and to
>foster speculation - i.e., for largely financial purposes, not legal ones.
>
>Doug
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