No. of Recommendations: 3
Are derivatives the "secret sauce" for the growing U.S. economy? Or is the immense scope of securitization setting us up for another 2008-style financial crisis when the spread risk pulled down investors all over the world?
*****historical context. do not flame me again******
Derivatives, aka "gambling". We were having this conversation in 2007. At that time, the default sweep account at the brokerage where I had my IRA was the Reserve Primary Fund. The fund's annual report floated into my mailbox around June or July of that year. The vast majority of their "assets" were derivatives. I changed my sweep account to one that put the money into FDIC insured CDs. A year later, Reserve's derivatives blew up, the fund broke the buck, and collapsed.
Of course they count "securitization" in GDP. How else could they proclaim the "supply side economic miracle"? Securitization doesn't require any factories, or employees, or useful products, as it builds a paper pyramid.
Recall the comment you made a few days ago, about B-school textbooks, in the 80s, shifting to preaching "maximizing shareholder value". Also most easily done with financial speculation, rather than productive endeavor.
Steve
