Quote from article by Kohler "Punters often don't realise they are being sold risky bets in the name of "securities", writes Alan Kohler. And when their bets fall, their money disappears. I no longer think derivatives should just be banned. I now think they should be treated as gambling, and then banned. That is, CFDs, CDOs, SCDOs, CPDOs, CDS and all the various other acronyms that might masquerade as financial instruments should be brought under the Interactive Gambling Act (2001), which makes it an offence to offer "real money" online gambling to residents of Australia. Sometimes financial derivatives are used by those who have a genuine trade or credit exposure to hedge or offset, but most of the time - the vast majority of the time, in fact - they simply involve a bet, made by a punter, often online. When they are not traded online, and are instead sold by liars masquerading as financial advisers, the "advisers" should be licensed as croupiers, and the "products" regulated as crap shoots and taxed accordingly. More,click on http://www.abc.net.au/news/2012-09-26/kohler-financial-bets-belong-under-the-gambling-act/4281318
The problem is not regulation or derivatives... it is governmental back stops that make these instruments riskless
Not actually the derivatives that are the problem although they should be regulated. It's the fraud that goes with them.This is by far the best interview I've heard about them. I wouldn't wanna f*** with this woman either. She's also got some interesting comments on gold. http://www.youtube.com/watch?v=hkfWTJg--K0
This is a line penned in utmost ignorance. IMHO, this guy has no idea, so therefore believes no one else has any idea - head up his ass. This is the problem. Stupid, irresponsible, moronic people buying stuff even though they are unaware what they are buying, and couldn't be bothered finding out. Then when it goes pear-shaped, they want to be able to lay blame on somebody else. This is typical of the well developed phsyche of this country, where common sense no longer exists, and liability for stupidity will litigiously rest with somebody else.
Derivitives are like the Emperor's New Clothes. No one knows what they are but no one wants to appear stupid by admitting they don't understand them, so they're allowed to continue, all in the name of human vanity. Derivitives were designed by mathemeticians and unemployed nuclear physists to hide risk in convoluted and confusing ways. But the risk is still there. And worse still, huge amounts of capital has been channelled into these risky vehicles...capital that will be lost when the risk is realised, and the piper has to be paid. Anyone whom puts their money into something they don't undestand eventually gets fleeced. When these suckers crash, there going to be a hell of a lot of untraceable money funnelled into a few people's pockets.
So very well put Wrcmad. People happily handed over their life savings to commisson greedy sales people without doing any of their own research on the multitude of products they were being sold. It astounds me how willing a lot of people were to part their cash mainly just to be rid of the responsibility. One thing the GFC has hopefully taught the general public is that they can't and shouldn't blindly trust just anyone with their money
I've actually wondered what would happen if a licensed broker created a derivative product that was actually based on a roulette wheel. I mean, provided the broker wrote a prospectus for the product in the correct way and makes clear that the derivative "tracked the underlying resultant black vs. red sequence in a real time environment", would they actually be allowed to offer it to clients and trade it?
If this was in the form of an option or futures contract then I couldn't think of a better payday for myself. I'd cash everything I own and short sell the volatility or premiums in near term 50% calls and puts hand-over-fist - knowing they would settle at or near 50%. This would be like hitting the no-risk jackpot every expiry month.
But the way I understand (modern complex) derivitives are set up, the house would have a half-way bet against you in a 'heads I win, tails you lose' senario.
I just thought roulette was interesting because the 0 (on a European wheel) gives the house a 2.7% advantage. Even if you're only playing odds/evens or black/red you'll go broke if you play it long enough because they have that 1/37th of an edge over the player. Anyway, I think it would be funny if someone got a derivative based on an actual casino game registered as a "legitimate" financial product, just to prove how ridiculous the whole market is.
Probably the utmost rediculous post in this thread. I'd rather see a roulette derivative before short selling was banned. Short selling is a vital function of the market and is what gives the market it's liquidity. Otherwise when things head south, it may be quicker to sell a house. Naked short bets fine they serve absolutely no purpose other than to allow wall street traders to bet on. As for all the rest of these products, I see no need for them either. Stock markets worked just fine before some smart ass invented them, now not even the ratings agencies can rate them they are so complex. When you have players like Goldman selling huge financial products to supposedly professional investors and even these don't understand they are being sold junk, then what hope does joe blow have?
Agree. Rediculous to ban short selling. A lot of businesses rely on short selling to hedge the price of their product - ensuring price stability for both purchase of raw materials and sale of end products. It serves a vital and legitimate purpose. The problem is (again) the public don't understand this legitimacy, and when they lose money, short selling is an easy scape goat - the blame mentality. As an example, if you have ever ordered a brand new car from a dealer, or, say a fridge from the appliance store, or anything with deposit down and delivery later - then you have just taken the other side of a short sale. Come to think of it, how many stackers participate in short sales by regularly pre-ordering coins or bullion? There is no difference in the markets.
Perhaps people with a legitimate reason to use derivatives or short selling should be allowed(farmers with crops,etc) . This is what they were intended for. And those using them as a form of pure gambling,should not.These companies distort prices and could cause economic chaos , because of there irresponsible and rapacious greed.
Market participants from outside commercial purposes (gamblers as you refer to them) are needed for market liquidity - as Lovey80 has pointed out above. This actually benefits the legitimate commercial participants. Maybe, rather than banning most parties (another form of gubmint control and regulation) they need to limit position sizes? However, there would inevitably be loopholes to exploit, and there would be a way to use third parties etc.
Perhaps the advantage,supposed liquidity, should be weighed against the fact that they could help bring down the worldwide economic system and bring on another depression?
Short selling is just as important to the market as going long. You have to have it. I wouldn't have a problem with limits being placed on the size of a position in a particular short as the "loss" is potentially unlimited. Where as on a long the loss is the amount that is staked in the original purchase. Take the other thread on Sirrus resources. Imagine having a large short position on that starting a couple of months ago? Maybe something along the lines of a short "margin call" once the position is in the red by a certain amount. Where the "margin" funds are held in some sort of escrow until the trade is completed and if the margin call could not be met at any stage the position gets stopped out the minute the short seller is out of funds completely? I guess a way of ensuring the people on the long side always get paid so that a short seller never gets so deep they go bankrupt leaving the long out of pocket. As for derivatives and the rest of the financial nightmares waiting to happen. Can anyone give me a reason why we need some of these products or even a market for them when the risks to the whole system are so incredibly high?
