Forbes 500 List Reveals A Disturbing Truth About Our Economy

Forbes 500 List Reveals A Disturbing Truth About Our Economy –

It’s not linked to our prosperity, it’s what’s eating away at it.

Lending is like the oil in a car, you need it to prevent things from locking up but you don’t make a car out of oil.

Or to mix more metaphors, it’s like having a meal made of salt or a tail wagging a dog.

When sombody gets rich because he actually makes something I can respect that.  It’s healthy and everybody wins.

But when we say allow somebody to triple the price of corn without actually even buying any physical corn, what is there in that behaviour that merits any reward?  Prices are manipulated and we get less than nothing in return for allowing it.  It would be less socially harmful to give them the same money in return for doing nothing at all.

It also increases risks, whereas the original point of hedging was to level risks.

One of the biggest risks is, when the fake markets for products that only move on paper are ten times as large as the market for the real thing, it opens the possibility of a new kind of “short squeeze” if enough people with options elect to take delivery.

Many financial institutions would go under if called on to fulfill all the options they back. 

That’s only one of many Martingale type gambles these institutions make, gambles that produce a lot of small gains but eventually lose catastrophically.

Worse, this kind of Martingale strategy is likely to go catastrophic with everybody at the same time, what you might call a “Super-Martingale” event.

If they weren’t tied together it wouldn’t be so bad, one institution hitting a brick wall would be survivable regardless of who it was.

But most financial institutions are making the same or similar bets.


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