Wednesday, December 15, 2010

A Secretive Banking Elite Rules Trading in Derivatives

by Louise Story from the NY Times (free registration required.)

This is a fairly lengthy article about the derivative financial bets placed by an elite few. The bets are obscure, secretive, lucrative, and only the very rich can place bets at this casino. As the article makes clear, it is difficult to know how their bets effect the prices of commodities.
Perhaps no business in finance is as profitable today as derivatives. Not making loans. Not offering credit cards. Not advising on mergers and acquisitions. Not managing money for the wealthy.
The privileged elite guard their little domain fiercely using all their wealth and influence to protect it from any kind of regulation and competition. You see, the very wealthy do not like competition. Competition is for you and I to fight over the crumbs of capitalism.
“The revenue these dealers make on derivatives is very large and so the incentive they have to protect those revenues is extremely large,”.... “It will be hard for the dealers to keep their market share if everybody who can prove their creditworthiness is allowed into the clearinghouses. So they are making arguments that others shouldn’t be allowed in.” 
As a ruling class they influence so much of what our culture consists of. And competition is a major component of it. That is why we "little people" are taught to compete over everything--grades in schools, getting into the best schools, obtaining employment, and even in fun activities like athletics that were formerly associated with recreation. You see, fierce competition provides exceptional athletes to play on teams "owned" by the rich to enhance their profits.

Back in the 1980s I went into a large store in San Francisco that specialized in board games. They had something like 10,000 board games. I was looking for a game that was designed around cooperation where people played to win together. Guess what? They didn't have a single one!