I know that Austrian supports deregulation and as well innovation. The question in mind is: Derivatives, is a non-regulated market and also a form of financial innovation. Yet, it seems that Austrians see it as a bad thing?
Am I missing something important here?
Maybe I’m missing something, didn’t knew Austrians see it as a bad thing.
Sounds like a voluntary contract between two individuals or organizations that affects no others (except perhaps very indirectly because of frb).
So they are fine.
In the latest financial crisis, some derivatives contracts ended up paying out when originially it was unlikely and others didn’t pay out that originally it was virtually assumed they would. There is nothing bad about that. This would have ended up killing some banks, short of government bailing them out. And that would be generally a good thing.
I said that earlier, because when I watch this Ron Paul interview with Neil Cavuto: http://www.foxnews.com/story/0,2933,424603,00.html
and Ron Paul said:
"I think what you’re seeing is the unwinding of trillions of dollars of derivatives. Nobody knows about it. When a guy like Warren Buffett admits he doesn’t understand them and it’s a big mess, you know it’s a big mess.
So, it’s the derivatives. Everybody’s involved. AIG, I thought, they talk about assets and they were OK, and, “Oh, don’t worry that much.” It turns out that assets had to do with derivatives. And this is all a fiction. It’s a — it’s an expansion. It’s part of the bubble that is started by the Federal Reserve. And then everybody speculates.
I mean, they buy derivatives on derivatives on derivatives. It has to unwind. You can’t build on a weak foundation. And that’s what everybody’s trying to do."
So this is where I based that Austrian, at least Ron Paul, sees it as a bad thing..
Ron Paul is saying that it is a manifestation of the problem (artificial credit from the federal reserve) - not the problem itself.