George Soros on SEC v Goldman & the Disaster of Derivatives

[Ghost Dog]

... Whether or not Goldman is guilty, the transaction in question clearly had no social benefit. It involved a complex synthetic security derived from existing mortgage-backed securities by cloning them into imaginary units that mimicked the originals. This synthetic collateralised debt obligation did not finance the ownership of any additional homes or allocate capital more efficiently; it merely swelled the volume of mortgage-backed securities that lost value when the housing bubble burst.

The primary purpose of the transaction was to generate fees and commissions.

This is a clear demonstration of how derivatives and synthetic securities have been used to create imaginary value out of thin air. More triple A CDOs were created than there were underlying triple A assets. This was done on a large scale in spite of the fact that all of the parties involved were sophisticated investors.

The process went on for years and culminated in a crash that caused wealth destruction amounting to trillions of dollars.

It cannot be allowed to continue.

The use of derivatives and other synthetic instruments must be regulated even if all the parties are sophisticated investors.

/Continues... http://www.economywatch.com/in-the-news/George-Soros-SEC-v-Goldman-disaster-of-derivatives-23-04.html

[RandomThoughts]

1. And whats worse.

The money created went one place.

The money that was destroyed came from a different place.


So stopping it from happening again goes against some sectors ideas of what is profitable. Which is why lobbiest are fighting regulation.

[xchrom]

2. Recommend

[DemReadingDU]

3. Yes, they should be regulated

But so much money is being made. I don't see any regulations willingly being made that would lessen their profits and lower their status quo.