Most people have no idea that Wall Street has become a gigantic
financial casino. The big Wall Street banks are making tens of billions
of dollars a year in the derivatives market, and nobody in the
financial community wants the party to end. The word "derivatives"
sounds complicated and technical, but understanding them is really not
that hard. A derivative is essentially a fancy way of saying that a bet
has been made. Originally, these bets were designed to hedge risk, but
today the derivatives market has mushroomed into a mountain of
speculation unlike anything the world has ever seen before. Estimates
of the notional value of the worldwide derivatives market go from $600
trillion all the way up to $1.5 quadrillion. Keep in mind that the GDP
of the entire world is only somewhere in the neighborhood of $65
trillion. The danger to the global financial system posed by
derivatives is so great that Warren Buffet once called them "financial weapons of mass destruction"
. For now, the financial powers that be are trying to keep the casino
rolling, but it is inevitable that at some point this entire mess is
going to come crashing down. When it does, we are going to be facing a
derivatives crisis that really could destroy the entire global financial
Most people don't talk much about derivatives because they simply do not understand them.
Perhaps a couple of definitions would be helpful.
The following is how a recent Bloomberg article defined derivatives....
Derivatives are financial instruments used to hedge
risks or for speculation. They’re derived from stocks, bonds, loans,
currencies and commodities, or linked to specific events such as changes
in the weather or interest rates.