A Quote by Ben Bernanke
With respect to their safety, derivatives, for the most part, are traded among very sophisticated financial institutions and individuals who have considerable incentive to understand them and to use them properly.
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The use of a growing array of derivatives and the related application of more-sophisticated approaches to measuring and managing risk are key factors underpinning the greater resilience of our largest financial institutions... Derivatives have permitted the unbundling of financial risks.
Anarchists generally make use if the word "State" to mean all the collection of institutions, political, legislative, judicial, military, financial, etc., by means of which management of their own affairs, the guidance of their personal conduct, and the care of ensuring their own safety are taken from the people and confided to certain individuals, and these, whether by usurpation or delegation, are invested with the right to make laws over and for all, and to constrain the public to respect them, making use of the collective force of the community to this end.
The subprime disaster was a result of financial bombs - derivatives - exploding in financial institutions such as AIG and Lehman Brothers, as well as banks and financial institutions throughout the world.
From the 1990s onward, the financial sector created a vast array of instruments designed to separate investors from their money, financial derivatives of an ever-increasing level of complexity. At some point, this complexity reached a point where even the creators of the derivatives themselves didn't understand them.
I've learned how to look at things and not judge them, but respect them and use it in a way that people understand that I respect them, show them love and respect their reality.
Derivatives in and of themselves are not evil. There's nothing evil about how they're traded, how they're accounted for, and how they're financed, like any other financial instrument, if done properly.
For the most part, people use "empathy" to mean everything good. For instance, many medical schools have courses in empathy. But if you look at what they mean, they just want medical students to be nicer to their patients, to listen to them, to respect them, to understand them. What's not to like? If they were really teaching empathy, then I'd say there is a world of problems there.
Apparently modern financial regulators are vastly more sophisticated than we were as financial regulators 25 years ago - because we had never figured out that the key to financial stability was leaving felons in charge of the largest financial institutions in the world.
In a system of capitalism, as people's wealth rises, the financial incentive to serve them rises. As their wealth falls, the financial incentive to serve them falls, until it becomes zero. We have to find a way to make the aspects of capitalism that serve wealthier people serve poorer people as well.
Financial institutions are not being bailed out as a favor to them or their stockholders. In fact, stockholders have come out worse off after some bailouts. The real point is to avoid a major contraction of credit that could cause major downturns in output and employment, ruining millions of people, far beyond the financial institutions involved. If it was just a question of the financial institutions themselves, they could be left to sink or swim. But it is not.
Tocqueville talked about "ceaseless agitation," citizens constantly use their institutions, constantly challenging them, constantly insisting upon their rights. It's also individuals taking responsibility for other individuals, recognition that no democracy works if they're weaklings.
The Federal Reserve has a responsibility to ensure the safety and soundness of financial institutions and to contain systemic risks in financial markets.
It is impossible to understand the financial health of big financial institutions and their potential impact on the market. They don't even understand it themselves.
Sometime I'm going to do an essay called 'The Virtues of Amateurism' for all of those people who wish they earned their living in the arts. The market kills more artistic people than anything else. It's a world of safety out there, for most people. They want safety, the magazines and manufacturers give them safety, give them homogeneity, give them the familiar and comfortable, don't challenge them.
That is the way convince people. Or change them and prevent them from hurting whether themselves and others. Art is the most effective form of communication.
You can use it to lift the human spirit and make them understand that there is more to life than their next drug use.
What I think about derivatives is if every institution that owns or trades them is properly margined and marked to market, including end-users, including every institution, including sovereigns and multilateral institutions, then the system would be safe - if people were margined the way customers of investment banks are margined.
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