Thursday, May 20, 2010

Interesting Perspective on Derivatives

I think I've found the next two books I'd like to read in this story: Janine R. Wedel: Shadow Elite: Derivatives, A Horror Story: "...elites .... invariably try to hang onto power--not so much by controlling the physical means of production, but by also dominating the cognitive map, or social discourse. What really matters not what is publicly discussed, but what is not discussed. Social silences, in other words, are crucial."

Perhaps the two books, Shadow Elite, by Janine Wedel and Fool's Gold: How the Bold Dream of a Small Tribe at J. P. Morgan Was Corrupted by Wall Street Greed and Unleashed a Catastrophe, by Gillian Tett will explain what would happen if there are NO derivatives at all. The phrases always heard publicly discussed about derivatives are, "they're necessary tools... bankers must have access to these tools... banks must distribute RISK by using derivatives." That's the mantra, over and over again.

What derivatives really do is cover the banker's asses when they make really, REALLY risky loans to people, businesses AND COUNTRIES that have piss poor credit. With derivatives, the bankers are assured a profit even when the loans default. That, it seems to me, is motivation to loan money to those who WILL default. Meanwhile, you and I, either as a customer or as an investor, or both, lose out at one end or the other and, as Goldman Sachs says, "that's our problem."

And, of course, there are those physics equations that are the backbone of the derivative that only a physicist can interpret; just another layer of darkness to hide the truth from all outside of the tribe.

The books should be interesting; bankers gathering in tribes to manipulate the financial system. It sounds like a good ole boy's club to me and they always seem to operate in the Dark Side.


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