posted on Oct, 1 2011 @ 02:28 PM
"Derivative" in laymen terms:
The actual word has nothing to do with financial anything (it's originally a calculus variable function and nothing more), but was adopted by the
market industry many moons ago as the catchall word of the day to describe, in a nutshell, "gambling".
It refers to the gambling of what may or may not be the eventual outcome and/or future value of an intangible asset(s). Intangible assets only exist
in numbers and are set at a fair market value, they have no actual physicalness to them (ie: stocks, goodwill, interest rates, market indexes,
No matter how many times these market analysts try to say it has nothing to do with gambling, they're full of crap. It's basically hedge betting on
future risk assessment... risks that originate from the very entity that defines gambling - the stock market backed by nothing, interest rates backed
by nothing, fiat currency backed by nothing, etc.
Lay your bet on the table and see if you can make some money from it... and as an added bonus, you get to put the monetary value of your bet onto the
asset part of your balance sheet to increase your overall net worth. Woo hoo.
The entire industry is nothing but a glorified numbers game... and if it all crashed and came tumbling down, the only things of value at the end of
the day would be the things that you can physically touch (food, a house, a precious metal, a pair of pants, a lollipop, a bottle of whiskey).
Just like when a company goes bankrupt, the only things worthy of monetary liquidity are their actual physical assets like machinery, equipment,
buildings, furniture, etc (tangible assets)... You don't see the bank coming along and giving the company a few bucks for the value of any intangible
assets they have sitting on the books.
And when an individual goes bankrupt, the creditors want your house, car, etc., and account for those things at a fair market value in order to
calculate your overall net liability to them. Do you see them applying any kind of monetary value to your working skills (an intangible asset) that
will enable you in the future to get a job ? No. They want physical things that they can sell and get cold hard cash for... now. Not some future risk
This derivative crap only works so long as the monetary market exists and works. It's a useless, catchall word that means absolutely nothing at the
end of the day when the cookie crumbles.
$250 trillion dollars worth of derivative exposure ?
Yet another reason why the Glass-Steagall needs to be reenacted... these banks have run amok in the gambling game... oops, I mean derivative asset