lol My wise thoughts! A DUer who flatters with panache.
At root it's all a problem of financial engineering and deregulation. The physics and finance PhD.'s keep creating new theories to make a ton of money, then they lobby regulators who know their job is to get government out of the way of investment banks and Wall Street. Creating counter-party instruments to risk has a long history, from the limited liability of Hudson Bay Company to Lloyd's of London insurance. Pushing off risk on others emboldens the explorer. Options, hedges, complex debt swaps. I see what you're saying about eliminating futures, but how do you do that when other instruments are part of the functioning system? Fed props to save the market with every crisis reduced short term volatility, but we learn now it was still there. For all their professed commitment to the free market, they never let anything unwind. Instead, they had to fit it to growth in the short term, and political considerations. Plunge Protection Team and all that. The Fed mandate is currency stability and employment, but they took it to mean growth at any cost.
There is the financial economy, and the real economy. All these financial instruments. I've posted on DU recently how QE Helicopter Money created overcapacity. That is the basic problem. Perhaps the financial engineers distracted economists. Easy money is still just easy money. It creates a boom that goes bust at some point. We're not efficient as an economy. There are empty strip malls everywhere, in every town and city, at the same time they build new strip malls as fast as they can. Cars are a temporary expenditure that costs 25% as much as a house. And at 100,000 miles the lease ends so you pass the risk to someone else. Anyone who thinks there isn't inflation hasn't encountered the real (non-financed) cost of the 3 big ticket items - house, car, college. And when you throw money at them in an era of easy money, prices go up. To ordinary consumers these are not financial engineering, but they are to those raking in the cash and do have effects in the real economy. People are not good with actual eyes-open financial information. They just want the goods, and purveyors just want the business.
We're about to find out if all this will break. Diversification mean 60% stocks, 30% bonds, 10% cash or debt. ETFs became the standard of course. But except for specialty segments, they all own the same stocks more or less. Computer models outperform active managers. You just pile on the FAANGs and add alpha if you can find it. These investments are vulnerable to systemic risk, herd mentality. In a crash ETF's are liquidated, bonds are liquidated, and they are all junk or very nearly so. So no one will want to own them. There are debt ETF's - covered call, global, junk, emerging, tech, healthcare, mid-large-small cap, foreign currency. Not sure if one can hang out in SPY dividends and suffer appreciably less. The risks in the corona meltdown are unable to be measured.
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