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Financial Derivatives: Why Honor Them?

Posted by billspaced | 11:13 AM | , , , , | 0 comments »

This is more a rant than a logical argument against honoring financial derivatives. Let me explain.

According to everything I've read about this, derivatives, based on underlying assets, significantly added to the financial woes we're currently experiencing. In fact, in Everything You Wanted to Know About the Credit Crisis But Were Afraid to Ask, Ben Stein claims that the losses are unlimited. Furthermore, none of these instruments were on anyone's books (sellers or buyers).

Here's an idea: Since the government is so adept and eager to take over financial institutions nowadays (presumably to avoid a financial calamity second in severity only to the Great Depression), why don't they just declare these instruments null and void?


If they're not on the balance sheet, and they're not "hard" assets like dollars or gold, to me, at least, they don't exist. They're like me saying you owe me money and you saying you don't. If they're a "contract," can't the government rule that they are illegal?

Nobody loses here, do they? After all, if they don't exist, then nothing was lost, right?

I mean, obviously, the institutions and individuals who are owed money lose, but hey, haven't we all lost a bit in the last few months? Shouldn't we all share in this, especially since a lot of us just wanted to buy a house? I certainly didn't want to profit off my neighbor's loss.

In the derivatives business, it seems like it's truly a zero-sum game.

Here's another one: If these instruments aren't on the books, then how are profits taxed?

Our government has been asleep at the wheel on this stuff. Seems to me like they condoned, if not encouraged, a black market on financial instruments; instruments, by the way, that are purely imaginary right about now.

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