> The above is true only if they have the reigns in > their hands. Just as they can make more money faster, > they can lose more money equally faster, if they don't > have the reigns in their hands.
If you think it's not a good essay, I'd like to know more specifically why, so that I improve. See for an example of how hedging schemes are advertised: http://www.gemstudy.com/InvestmentDownloads/Hedge_Funds_The_Real_Story_Prese ntation.pdf I am really more interested in the quantitative and qualitative economic implications, the ethical implications and the cultural/sociological meaning of the derivatives business, about which I didn't really write, and in the economic/investment expertise of derivatives brokers (their ability to anticipate future profitability and economic growth). I would certainly agree with Sabri that you can both make money faster, or lose it faster, through derivatives investments. I thus said specifically, only that profitability in derivatives "can" be much higher, but not, that it always will be. Mary Poovey cites an investor's guide to the effect that between 75% and 90% of all futures traders lose money in any given year, but, obviously, if they didn't make more money than they lost overall, they wouldn't be in the game, and the game would close down quickly. The fact that it doesn't, and instead grows, suggests that it is becoming more lucrative, not less. Typically a "secure" investment will always have a lower rate of profit than the (potential) rate of profit on a "risky" investment, and the differential is precisely what the risk-taker makes his own money on. What derivatives imply, is among other things the ability to invest and divest much more quickly, as one "surfs" world profit rates and volumes. Looking at the available evidence (admittedly not all that precise, because of measurement difficulties), it seems to me that both the volume and rate of returns on derivatives, as well as the total capital tied up in derivatives, has grown. Poovey writes: "As it reworks the relationship between temporality and value, [the new financial axis] also redefines labor, agency and responsibility. In the new culture of finance, value can be created without labor, agency is transferred to an unstable mixture of mathematical equations and beliefs, and responsibility for disasters is pinned on the individual (a "bad apple") or simply dispersed as analysts blame their investors' losses on flawed computer programs or unforeseeable market forces." op. cit., p. 34). This is of course not quite correct, at least in two ways: the broker still has to work his ass off to make his money, constantly absorbing new market information, and, in the last instance, the whole system still depends on (1) the continual conservation of existing asset value by living labor, and (2) the production of a net incremental value by living labor. A financial claim may be a claim on another financial claim, but however long the chain of claims may be, the financial claim is ultimately always claim on surplus-labour (Mehrarbeit) or the incremental market value of a tangible asset. Mr Buffet is really just saying that because the whole bubble is built around "beliefs and perceptions" about future profitability which affect investor behaviour, this means, that real returns themselves becomes substantively contingent on those beliefs and perceptions, and this is a potential "house of cards" since those beliefs and perceptions are prone to "volatility" and manipulation of a type which can evade mathematical analysis (beliefs being things that can change qualitatively). But that is really no different from Marx's observation that the development of the credit system has the potential "to blow the foundations of the capitalist system sky-high". BTW as regards the controversy about outsourcing, "...the latest monthly survey of 55 economists by The Wall Street Journal's online edition shows that most agree on one point: "Offshoring" isn't the prime culprit. (...) On average, the economists estimated that the number of U.S. jobs lost by movement of operations overseas since 2001 has been 188,000 in the services sector and 502,000 in manufacturing, for a total of 690,000. That's a small fraction of the 58.6 million in overall layoffs that companies undertook between 2001 and 2003. The vast majority of those layoffs were offset by new hiring elsewhere in the economy, but on a net basis, payroll [i.e. employment] levels declined by 2.3 million during this period." Source: http://www.quicken.com/investments/news_center/story/?story=NewsStory/dowJon es/20040311/ON200403112136001338.var&column=P0DFP J.
