Why? Why can’t you borrow from a lot of little guys at once? With the aid of computers I don’t think the bookkeeping would be *that* complicated.

In fact, doesn’t the Treasury already do this and call it “bonds”? And the bookkeeping is even more simplified by fixing the maturity value and letting the sale value fluctuate; everyone knows exactly when the bond matures and what it’s going to be worth, if the issuer is solvent.

Maybe I shouldn’t try to understand the issue; but I think trying for some understanding is harmless as long as you don’t try to make money off it.

I agree that “ignorance is bliss” when it comes to derivatives and other esoteric instruments. It was pretty obvious to a lot of ordinary (non financial types) that there was a massive housing bubble that was going to crash. Of course, many of these people were probably in no position to do anything about it, or if they weren’t too greedy, they quit the market when the bubble had not completely collapsed.

She’s getting married, right — what’s her marriage cycle been to date?

In fact, it should be a function of the federal reserve (if it isn’t already) to prevent unhealthy concentration.

At CT I’ve proposed a simple fix: abolish the federal reserve and go on the gold standard. Complete bullshit, AFAIK, and mutually contradictory I think, but people get tired of my unremitting negativity.

The Gold Standard Greenback Party cannot be defeated.

It is my theory that concentration of banking is the problem, Minnesota local banks’ cooperating with the commies notwithstanding.

Soros and Buffet are correct in this sense: in this current banking system derivatives are extremely dangerous, yes. But for this sort of structure – so massively centralized and concentrated, yet without any rules or clear objectives – pretty much any deviation or mistake can be deadly.

In a more decentralized system you would have some small banks controlled by Buffet and Soros, others by Greenspan and Schwartz. They could experiment and screw up all they want, get rich or go under, nobody would care.

It’s better to have (if possible) some sort of holistic environment, than to follow these leaders-geniuses like Buffet and Soros. They can be right today and wrong tomorrow.

I was first introduced to derivatives almost ten years ago by the Andrew Wiederhorn case in Oregon. Wiederhorn was a seminal, cutting-edge finance whiz kid who used derivatives to leverage a moderate investment into tens or hundreds of millions. (He borrowed money to buy bad debt, contracted it out to debt collection agencies, borrowed more money against the bad debt, and went on from there). There was a downturn and he went bankrupt, but not before engaging in various kinds of fraud and destroying a union’s pension fund.

By the grace of God, a local weekly published a long worshipful article about him a couple of months before everything fell apart. The premise seems to have been that, since the journalist couldn’t understand how Wiederhorn did it, Wiederhorn must have been a genius like Einstein. I also didn’t understand it, but my interpretation was that something fishy was going on.

And it turned out that Wiederhorn didn’t understand what was happening either. He had never really planned to be a crook, he just believed in magic and believed in himself. In interviews immediately after the crash, he was explaining that there never had been anything wrong at all, and that someone else (New York bankers, I think) had ruined everything.

I’m sticking with my theory that at a certain level of complexity and unintelligibility, sophisticated financial instruments are time bombs because no one really knows how they work. I’m not terribly embarrassed to be on the same page as dummies like Soros, Rohatyn, and Buffet, rather than you.

(A universe with 100,000 small banks would be unstable too — it’s been tried. Did you know that in Minnesota during the Depression, the small local banks were in such bad shape that for a time they were in political alliance with the Communist Party? Fact.)