whatever said:
Kasz216 said:
whatever said:
Because it is so large, you can't regulate it? Huh? Transparency is a start. Not allowing swaps to be used as bets, requiring you to own the underlying asset to buy a swap. They could also be abolished completely going forward.
So your solution is to let this market crash and bring the world into a depression like we've never seen? Yes, it may happen no matter what, but I'd rather we take a shot at lessening the impact.
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No... it's to actually stop it from happening by stopping the underlying principles.
Think of derivitives like HIV.
It can't kill you alone, but if you catch a cold.... watch out.
Derivitivies are world wide... yet the countries that avoided the derivitives crash were largely financially healthy, fiscally conservative countries.
The housing bubble is what triggered the derivitives collapse.
The reason is because a lot of derivitives were morgages involving many different houses in different states... or in europe countries. (They actually had a near simaltanious housing bubble.)
This was completly unexpected because, generally that's now how realestate works. Real estate goes up here or down there... it's never always up and always down. Except it ended up being always up and always down due to the previously mentioned overextended lending.
A giant devaluation of this caused those derivitives to fail, which led to people not having enough money to cover other derivitives. (Hence why they failed and the number of derivitives that failed wasn't only subprime morgages.)
There is literally no way to prevent this from happening, except by stopping things like housing bubbles. The derivitives are out there already. They are worth more then 20 times the amount of money that actually exists. There is no regulations that can allow such a thing to be covered.
Stopping derivitives right now will hurt economic growth and cause a double dip in the recession.
In reality we probably shouldn't regulate derivitives and instead take a defensive stance against bubbles, untiil we get far enough out that we can suffer another huge recession.
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Again, I agree that the housing bubble triggered the collapse, but it was NOT the underlying cause of it. The market itself is unsustainable. Having a market worth over $600 trillion when all of the world financial assets are worth less than $200 trillion is just not sustainable and is extemely fragile. This was going to collapse with or without the housing bubble.
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See that's the thing... it's not really extremely fragile... if it was, it would of happened a lot sooner.
Derivitives are like a Nuclear Reactor. They're usually very safe... but if a perfect storm of things happens... the surrounding area is seriously screwed.
The derivitives market only crashed because a nationwide housing bubble crash was completely unheard of before. It's like losing your house and not having flood insurance, even though there has never been a flood in your area.
There wasn't any contigency protecting from it because it was thought to be something that couldn't happen.
It can't have collapsed without the housing bubble. There needs to be an external reason for derivitives to collapse. The only way for the derivitives market to crash is for a LOT of deritivitives to need to be paid on. Which only happens due to a crash in a "real" credit market.
It's a hell of a risk to run, like guessing a number between 1 and 100, and if you guess right you get shot in the head... but if you guess wrong you get a bunch of money.
Something that should be stopped? Yeah probably, not something that can be taken all out at once though, unless you just want to be shot in the head since a heavy clamp down on derivitives would have the same effect as crashing derivitives, heck it'd probably cause the existing derivitives to crash.
