Gambling With Your Money

Originally posted at on March 16, 2012

It’s quite easy to lambaste a financial institution like Goldman Sachs, as Greg Smith did in his screed published in the New York Times on March 14th.  What is much harder is finding a solution to the problems that underlie the derivatives market.

In an article by Peter Cohan in the Daily Finance, dated June of 2010, the figure cited for the amount of money handled in the derivatives market is $1.2 quadrillion. Peter had to spend the first two paragraphs explaining how much money a quadrillion represents.

Suffice to say it’s quite a bit more than a billion or even a trillion. It’s 1,000 times a trillion. Now that it’s almost two years later, you can just imagine what that number would be today.

What is amazing about this amount isn’t that it’s a lot, or that it’s an unregulated, magical market, but that it represents something truly cynical. The derivatives market is basically betting on companies failing.

In my view, this is an ethics problem.

When you use your money to support a company, to invest in its growth and expansion, you provide an incentive to improve the world in some way.

When you use your money to bet on a negative thing happening, you’re essentially promoting the tearing down of companies.

But if you keep the balls tossing in the air, then everybody who trades can make money off the illusion of the thing they’ve “created” which is in fact, a lot of paper or computerized zeros.

The problem is, if you pull a strand of this derivatives market, and you don’t stop pulling, the whole thing can come crashing down in one enormous…. well, we don’t have a word for it because it hasn’t happened…. yet.

I think of the derivatives market like a bunch of traders diddling themselves. If they keep diddling and diddling, they feel great. But if they stop at some point, well, they’ll have nothing there. And so will a lot of people who “believed” in this market. A word to the wise: if you want to keep believing in fairies, then keep believing in the derivatives market. But if you’re a realist, and you want to keep your money safe, don’t go there.

Do you know where your investments are?

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