Comment by vzcx | Hacker News Reader

Comment by vzcx | Hacker News Reader

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Bold claims. Forgive me for saying so, but your knowledge of finance does not strike me as particularly deep!

Do you not think that use of financial instruments is vital for allocating resources in a world of imperfect information?

For me, their utility and necessity is obvious. If you think about it, making stuff that people want is actually rather complicated. The world is rife with hazards and risk; the intricate supply lines upon which production depends are all vulnerable to disasters both natural and human.

Naturally, those whose business it is to produce things and not to speculate on future events would like to be free of such risks. This is true the source of fundamental demand for financial instruments. All the derivatives markets, and zero-sum game apparatuses exist in order to transfer -- and in so doing compute a consensual value of -- these risks to those who believe they are better informed about reality.

While I understand not wanting to personally engage in this process, I claim that that the world is better that these contracts and exchange machinery exist!

@vzcx That is like claiming that the world is better off with heroin. The discovery and manufacture of that drug were a chemical curiosity. Unfortunately, it short circuits the pleasure receptors and people develop all sorts of maladaptive behaviors just to obtain more of that drug. Their behaviors are maladaptive because they are focussed on ONLY obtaining the drug. That drug is no longer useful medically but it continues to be a significant market all on its own. The traditional way of stimulating the pleasure receptors of the brain (which involves work of some kind and usually involves other people and thus imbues those 'other people' with value) is bypassed.

In like fashion, the volume of currency trading has diverted massive amounts of a resource (money) simply into making more money. Those 'priests' managing this activity reward themselves with a trivial fraction (slice off the top) but the amounts are so gargantuan, that these few people become an unattainable anomaly that the 'rest of us' gawk at, and many 'have nots' envy with despair. This inequality is the side effect that people are looking at and writing about, but it is not the real failing of our system. The fundamental flaw is the colossal hoarding of resources (that could otherwise be put to 'good' use - investment in stuff that people need to make and use).

In addition, the measurement and observation of this hoard of money is distorting our perception. When we talk about productivity and GDP, our numbers look passable because we only talk about the dollar amounts. Increasingly, the production and measurement of value is reflecting the 'effort' and 'success' of money multiplying itself. Yet unemployment, average wage, and educational achievement for the 'average American' are falling dismally. How can it be that wages for teachers are so low? How can it be that tuitions are so high? Simple observations like these are the song of Nero heard while Rome burned.

I see little value generated by treating money as an end rather than as a means to an end. Liquidity and better pricing of goods are the classic rewards of that gambler / investor culture. Meanwhile its demerits (like the 2008 financial meltdown) are blithely overlooked.

In fact, now that there's so much automated trading of all manner of financial instruments, there should be no real need for any new tradable vehicles. In fact, if liquidity and accurate stock pricing are the only desiderata of non-equity traders, and these ends are met otherwise, it sounds like we could easily do away with the entire derivative / option markets altogether as being purposeless and overly dangerous, serving only the professional gambler banker and his vain pursuit of gigabucks.

It does not really matter what value any one person sees in it, if people who have the resources to sustain a market want said market they will create it and maintain it.

Remember though that futures / currencies / even stock are just gambling at the end of the day. Its corrupt gambling where some players have much more information than others (and thus it is traditionally just a vacuum of wealth from the poor to the rich) but people are just betting on where profit will emerge with the intent to get some of it when it happens, and through their actions of investment are trying to cause that profit to happen.

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