Thursday, June 29, 2006

Derivative Risk and Market Manipulation

Here's a couple of somewhat goofy but nonetheless interesting articles on capital market manipulation and the ever expanding growth of derivatives by Douglas Gnazzo.

The first is flamboyantly titled Market Intervention: Laying Off Risk- Derivatives of Hell. It essentially argues that all forms of lending are futile and immoral at their core- by definition unproductive activity and in the final analysis a means of profiting from the misfortune of others. He then goes on to argue that the 200+ TRILLION in derivative bets (something he implies is another form of money lending) scattered throughout the world's capital markets are primarily a means of market manipulation and actually increase financial risk rather than hedging against it. He's rather vague on details with the last point and presents a totally one-sided argument, but I suspect there is a kernel of truth there. His message about 'usury' and the perils of the accelerating growth of credit (again probably too extreme) is an important and refreshing one we almost never hear in our day and age. It's true that most banking and financial activity isn't a 'zero-sum game', but it's probably much closer to that then we currently believe it to be.

Here's another article by the same author called Gold Wars, which catalogues the history of government and private manipulation of the gold market. Definitely shows that the 'free' market in the real world can at times be anything but fair.

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