>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?
Certainly there'd be no need for a currency hedge in a world of fixed exchange rates. So in that sense, the explosion in foreign exchange trading and derivatives on exchange rates is a result of "neoliberalism," if you want to take the origins of neoliberalism back to 1973.
But it's not like we could really go back to the pre-1973 world, is it? Neoliberalism wasn't just a choice between a set of options - it was a response to a real set of political and economic problems, like US inflation, labor militancy, declining profitability, restive colonies, etc.
>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.)
No, most of the speculative juice comes from betting on changes in the underlying prices - and, if you want to get fancier, the relations between prices (e.g., changes in the spreads between interest rates on risky assets and in allegedly risk-free assets). A trader might load up on T-bond futures at 8:27 AM because she thinks that the US employment report to be released at 8:30 will show a gain of just 75,000 jobs, not the 200,000 expected by the market consensus. But of course it's not all speculative; some airlines hedged their exposure to higher fuel prices and some didn't.
Doug