[lbo-talk] Capitalism on Derivatives?

[brad bauerly]

SA wrote:
>The specific
>market/institutional configuration that made default on a (relatively)
>small class of securities so disastrous was the existence of a parallel
>banking system for large firms and banks - the repo market - that used
>AAA-rated MBS *as money* under the false or unthinking assumption that
>the value of those securities' was as secure as that of Treasury bonds.
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I think this is incorrect.  The reason that they were using MBS as money
instead of Treasury bonds was because they had a higher rate of return. This
means that they have higher risk associated with them.  Also, I don't think
any form of money has ever been completely secure in its value.  With the
use of derivatives as money it simply creates a spectrum of differentially
risk exposed and rate of return money forms.

Brad