The Derivatives Game

A majority of the population of the U.S. does not know what a derivative is. I'm not sure what it is either. Then I looked it up on Wikipedia and found "A stock derivative is any financial instrument which has a value that is dependent on the price of the underlying stock." OK? I think I'd understand it better in layman's terms but I'll continue studying.

With all the reading I've been doing on the stock market and the current A.I.G. bonus scandal, a derivative's definition seems to have changed a bit. It appears more like a security comprised of unstable assets such as mortgages, car payments, and credit card debt. Then it's resold to another financial institution as insurance then passed along like a hot potato. The shady part is when you sell off a derivative as a credit default swap or CDS, it apparently loses value immediately becoming more "toxic" than before. It's a gambling game except that the person selling, is winning all the time. And if it's your money (or mortgage in light of the current economic crisis), you're the biggest loser. They're literally laughing all the way to the bank. Greedy, ugly and shameful....

Matt Taibbi, an journalist for Rolling Stone wrote an extensive article on how the economic crisis blew up because of this derivatives bubble. Click here to read the article.

Plenty of economists and law officials foresaw this derivatives bubble inflating and warned of its potential collapse. One such person was a NY Governor by the name of Eliot Spitzer. Remember him? Whether conspiracy or not, one has to observe an article he wrote for the Washington Post in 2006 about the shenanigans of derivatives and its severe affect it would have on the U.S. economy. Then, three weeks after his article posted, he was outed for a prostitution ring he was involved in. Not too smart on Mr. Spitzer's part since his justice for the people had been overshadowed by his lust for female attention other than his wife. The video below gives a more detailed account. If you can not see the video, click Why Eliot Spitzer was politically assassinated.

The financial system is an extremely complex organism and it should be integrated in our early education system. I believe if humans continue using the monetary system as a source of growth, there should be a structural foundation in learning the stock market at an early age. It only makes sense. It would weed out the unethical attempts of unregulated laws and possibly put forth a young mind who could restructure the financial system that would benefit all, not just those who know the game.