October 29, 2011
why is bank of america hiring a star for their derivatives department?
derivatives and swaps destabilize the stock market, cause/enable the market to make more violent swings. there are other methods to hedge a position.
they are usually not transparent to the investor or the market.
all investments or gambling should be disclosed in financial statements. they are not transparent to the investor at the time of taking a position and on financial statements.
banks that traffic in these should not be covered by the FDIC. are they hedging against the market? are they hedging against their customers?
derivatives and swaps bet usually against the market on one side of the transaction. it is not required to be a stakeholder in this market to buy part of these. originators of swaps have more information, usually, than the buyer. originators can design the swaps based on this information, often disadvantaging the other side of the transaction. these are like parlay bets. why do we need these in the stock market. risk matches possible gain. counterparty risk is greater because they could lose much more than they estimated.
i think derivatives, leveraged swaps should be illegal. banks, in particular, should not be trafficking in these.
hedge funds don't need these either. in fact, i don't think we need hedge funds.
when an entity gets large, controls more assets, they have a responsibility to the greater market. their positions need to be responsible to the entire market, to the participants in the economy.