121–130 of 316 posts
This is an excellent resource and a great read, but DAMN do money markets seem stupid as all get out to me. Where is the productive output of all these arbitrage shell games? How is this more than an abysmal waste of time and resources simply to make a small handful of bankers richer?
This is an excellent resource and a great read, but DAMN do money markets seem stupid as all get out to me. Where is the productive output of all these arbitrage shell games? How is this more than an abysmal waste of time and resources simply to make a small handful of bankers richer?
I’m the author. Thank you for saying it is an excellent read — that was no small amount of work. You ask “Where is the productive output of all these arbitrage shell games?”, which is a very fair question. The purpose of financial markets, sometimes but not always wholly achieved, is to transfer risks to those best able to hold them. E.g., you are not the optimal person to hold the risk that, through no fault of your…
Earlier quoted context omitted.
It is an interesting reframe to think of insurance as a, roughly, ATM put. Having some experience with both trading derivatives and gambling though, I’m fairly confident saying that it’s a distinction without a difference. In both cases a little guy with an understanding of risk and bankroll management and some aptitude for the game, which for trading is a Keynesian beauty pageant, can scrape up a few bucks. But most…
The derivatives market is like if they let you buy insurance on anyone without ah insurable risk. So I could decide that I think your house is likely to burn down, so I buy insurance on it. That's what enables the gambling. If the only people who could buy puts or calls were people who had insurable risks in the underlying; it would be a lot smaller market and less gambling.
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Farmers use futures contracts to protect against price risks [0]. As do energy suppliers [1]. [0] https://www.ers.usda.gov/webdocs/publications/99518/eib-219.... [1] https://emp.lbl.gov/publications/primer-electricity-futures-...
There is a societal benefit that comes with individuals internalizing their own costs of risk. Treating society like it's in an economic womb while Mother Finance shields it from the world of worries rewards ignorance and in my opinion accelerates us toward the world depicted in Idiocracy. It is nice as a purchaser of such securities that you can build things more quickly than usual and transfer worry to someone who…
We're already there, brother.
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I’m the author. Thank you for saying it is an excellent read — that was no small amount of work. You ask “Where is the productive output of all these arbitrage shell games?”, which is a very fair question. The purpose of financial markets, sometimes but not always wholly achieved, is to transfer risks to those best able to hold them. E.g., you are not the optimal person to hold the risk that, through no fault of your…
Except that is not exactly "productive", isn't it? After all, risk was not eliminated, only redistributed. Productive output, e.g., would be something that reduces the chance of your house catching fire.
(Likewise with credit allowing people to finance ventures that they would otherwise be unable to)
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Why have them privately controlled at all? The fed prints the money. The fed could be the bank and insurer as well, and obviate the middle men skimming the pot.
I think the question should be 'why not'? The default should be the government doesn't do things and only does things that it is uniquely able to do.
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The derivatives market is like if they let you buy insurance on anyone without ah insurable risk. So I could decide that I think your house is likely to burn down, so I buy insurance on it. That's what enables the gambling. If the only people who could buy puts or calls were people who had insurable risks in the underlying; it would be a lot smaller market and less gambling.
Regulating participants to only those who have a purpose and meaningful reasons, would mean higher bid-ask spreads, less liquidity and less turnover, which then means those markets would probably cease to exist. Gamblers in these special markets are a net-positive, non-gamblers are happy to give some gamblers a payday or some drink money, since it allows non-gamblers to focus on their main activity, instead of doing…
Earlier quoted context omitted.
I’m the author. Thank you for saying it is an excellent read — that was no small amount of work. You ask “Where is the productive output of all these arbitrage shell games?”, which is a very fair question. The purpose of financial markets, sometimes but not always wholly achieved, is to transfer risks to those best able to hold them. E.g., you are not the optimal person to hold the risk that, through no fault of your…
Except that is not exactly "productive", isn't it? After all, risk was not eliminated, only redistributed. Productive output, e.g., would be something that reduces the chance of your house catching fire.
Earlier quoted context omitted.
Prices and financial markets in general exist solely for information transmission. The central problem of economics is "How do you produce the things that your population needs, in the quantity and at the time they need them, as efficiently as possible?" This is why every centrally-planned economy eventually fails, and why we were stuck in the feudal middle ages for a millennia. Information (and incentives ) about wh…
> solely for information transmission Certainly one function of financial markets and prices is to convey information, but that's not "solely" their purpose. They also provide a mechanism for resource allocation, risk management, wealth generation and collective action, among other things. Your point about centrally planned economies, while historically corroborated in cases like the Soviet Union, might be an overgen…
China isn't really centrally planned. They call themselves that so that the government and previous communist ideology can avoid losing face, but anyone who's visited there or done business with Chinese companies will say that it's intensely capitalistic, just with the potential for random state interference at a whim. I suspect the same is true for Vietnam, but know less about the country.
Information asymmetry issues are exactly why certain types of financial transactions are illegal - that's why we have things like SEC disclosure and insider trading laws.