The Confidential Memo at the Heart of the Global Financial Crisis

In fact, Brazil is surprisingly well-insulated from the rest of the world economically. After many years of horrible financial crisis, it's adopted very conservative and heavily regulated banking practices. It's got an astronomically high risk-free rate making the cost of capital high enough to discourage reckless borrowing domestically. Even borrowing cheap money internationally was shown to be risky after the exchange rates changed sharply around 2000 causing the "órphãos do cambio". Most economic success has been captured by those with access to cheap money through family and friends. Our "Rockefellers" and "Mellons" got a lot richer because they had access to enough cheap capital to go after opportunities that few others could meaning that there was little to no competition in many major industries. The Bolsa Familiar did a lot to stimulate economic activity that more equitably spread across the society (it's an interesting analog to the notion of a universal livable wage and the rest of the World should take some time to study it's impact at both the macro and microeconomic level". We're also fairly well insulated trade wise from the rest of the world by our own incompetence at the governmental level. Brazil has been remarkably short-sized when it comes to essential infrastructure. Most big projects are poorly planned if at all. We lack decent shipping infrastructure internally and our ports and airports leave a lot to be desired. We could probably have done even better if we actually had the infrastructure internally to move more of our natural resources abroad.

All in all, Brazil in the last 20 years is a country capitalizing on a lot of its potential that it couldn't capitalize on prior to the Plano Real. All the external trade like iron ore and agriculture largely served as a buffers from instabilities as we developed lots of industries internally.

As long as a reasonable amount of derivatives are created for the purposes of "legitimate hedging activities" (whatever that means) then that may indeed be the case.

However, as you create more and more derivatives ... as the value and volume of the derivatives increases beyond the value and volume of the underlying securities, they begin to distort the value and prices of the underlying securities. In the real world, where they affect real people.

The more you distort those underlying values and prices, the more violent the snapback is.

You may indeed be able to tie up the derivatives ecosystem into a tidy little box in theory, but real people get hurt when derivatives distort underlying prices. AIG and credit default swaps is a perfect (and very recent) example.

As it happened with AIG, they had a situation where those liabilities became real, and to large to honor. It was as if they created this huge debt from thin air, with not enough collateral.

I guess in a sense since their loss was supposed to be Goldman Sachs gain, there is a netting to zero, but that seems semantic.

In would think of netting to zero as meaning something like a zero sum gameve where no participant can win or lose more money that existed.