Ciaran this is very interesting stuff but still very problematic in my way of thinking.
In theory, all this stuff works well. In theory, it is all quite fascinating and intriguing. If the convoluted instruments and their equally convoluted risk minimizers work, it sets off an "irrational exuberance" of similiar and even more risky instruments. It becomes a feeding frenzy, almost a hysteria of one upmanship and pushing the limits of the game into unchartered territory in the quest for more and more.
Problem is, eventually, someone has to pay the price cuz the momentum of illogical instruments, insurance built-ins or not, can not be maintained over time. It is unsound speculation with no basis or foundation in reality. Paper money, paper profits, investment illusions with nothing of substance to back them.
The ones who end up paying in a global meltdown like was created this time, are the taxpayers and the citizens. Cost the US taxpayers, so far, over a trillion dollars to sure up an illusion with no basis in sound economic principles and no colleral. Sound economic principles deal in tangibles i.e. acceptable collateral of equal value.
The problem, to me, is multifaceted:
1. Risks one takes with ones own resources is ones own business. When others are dragged in, on a domestic or global basis, the ramifications are astounding - good or bad.
2. Instruments developed to exploit a market is one thing. Creating a market just to exploit it, is unacceptable and unethical in my mind.
3. The people, who end up holding the bag, should have protections to curb this irrational exuberence and keep it grounded in reality and tangibles. That, to me, is the responsible thing for both companies and governments to do.
Money and its accumulation is not an even playing field. Big companies and businesses can hedge their bets and offset potential losses with insurance stuff. Even that doesnt matter much when the ultimate insurer of bad investments is the taxpayer period.
You and I do not have that luxury. We pay the ultimate price. We lose our homes and jobs and belongings and lives AND IN ADDITION we are saddled with even more debt to bailout the booboos.
I dont know about you but to me that is a royally f***ed up way of treating people, doing business, and running the economics of a country.
4. Regulations are put in place for a reason - to curb the irrational exuberence that assign unacceptable and uninformed risk to an unsuspecting people. To dismantled them on a "trust us" basis or "we can regulate ourselves" basis is illogical. Regulations were instituted because it was proven this self regulation was a farce.
People being people have the tendency to take advantage of others for their own enrichment. It is a very sad but very real phenomemon.
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