On Feb 26, 2010, at 8:45 PM, Mike Beggs wrote:
> Dick Bryan happens to be my thesis supervisor, so I might jump in
> here. Yes, one of their concerns is to dispute the line that
> derivatives and other financial innovations of the last few decades
> are a great manifestation of irrationality, froth and/or waste. Or at
> least to 'bend the stick' against that conception and to say there is
> much else interesting about them.
I'm a bit short of time now, but I do want to say something. I met Dick at the Socialist Register mini-conference in Toronto the other week and found him an interesting guy. For some reason, he thought I took some sort of vulgar populist line and thought derivatives in particular and finance in general were all a fraud and a waste. Of course I don't. But there's a lot of frothy parasitical waste around a meaningful core. So with derivatives, yes, they are an attempt to cope with uncertainty and volatility. But, there are several buts. One is that derivatives are used very selectively - firms exposed to price risk on currencies and commodities don't always hedge, because they're making market judgments, meaning essentially that they're speculating. And the banks the create OTC derivatives bury a lot of opaque crap in them - e.g., the mortgage CDOs that blew up not all that long ago. Players who think they're hedging or doing something else conservative can end up getting hosed. And many derivatives have no rationale other than to evade taxes or regulations. So it's a long way from an either/ or thing.
Doug