Someone explain to Alex what a derivative is

[MarquisdeFuk]

Re-packaged debt is repackaged debt NOT a derivative product.

A derivative is a financial instrument that is "derived" from a real stock, currency, oil etc

For example, lets now create a derivative based on ("derived" from) house prices:

I, the seller, will sell a product to you, the buyer, that will pay off if a specific movement or event takes place in the house price index (this can be created if a suitable or acceptable one does not exist), for instance a simple rise or fall.

A derivative is therefore not a "real" product like stocks, commodities, etc., but an instrument that, if you like, describes a specific behaviour of a "real" stock, commodity, index, oil price etc etc. You can create a derivative based on anything you like.

Again though, taking AAA rated junk mortgages and mixing them with AAA rated treasury bonds and selling the whole lot as AAA rated debt is nothing to do with derivatives.

[andy1033]

I think most of the derivative stuff is just la la land, and like ron paul said, buffet would not go near that, and he is supposed to be quite good at socks and economics, lol.

The derivative scam, is just some weird fantasy world, for most of us, and i am sure hardly anyone understands it, lol.

[Dig]

Hey Alex someone wanted us to tell you what a derivative is, so here goes...

A derivative is a mechanism for enslaving the next 10 generations into perpetual debt.

That about covers all the essential information.

More here: http://forum.prisonplanet.com/index.php?topic=59701.0

[MarquisdeFuk]

Ron Paul is right, and no sane person would, but if you're going to attribute (correctly) the financial collapse to derivatives, you should know what they are and what they're not.

The repackaged debt issue is actually part of the "its all the bad mortgages fault" scam.

[pac522]

So if debt is repackaged and sold as an asset such as a stocks or commodities, can't you run a derivitave scheme against it?

[MarquisdeFuk]

You can't sell repackaged debt as a stock, only as debt.

What you can do is issue a security based on the "asset" that is the debt eg a Mortgage Backed security where the "asset" is the loan and payments on it. Then an instrument can be created derived from the performance of that security - a derivatve.

[pac522]

You can't sell repackaged debt as a stock, only as debt.

What you can do is issue a security based on the "asset" that is the debt eg a Mortgage Backed security where the "asset" is the loan and payments on it. Then an instrument can be created derived from the performance of that security - a derivatve.

That's exactly what I was saying. I was only using a stock as an example of an asset. So when Alex is talking about repackaged debt derivatives, he's talking about the derivative that occurs after the debt is repackaged as an asset. When Alex speaks about that I think he assumes the listener makes that connection.

[MarquisdeFuk]

Well, it was the Sunday show that originally prompted this post. In the first hour Alex defined a derivative as the repackaging of debt - clearly implying on several occasions that it was the repackaging and selling-on that made it a derivative product. He did add that there were many other types of derivative.

Now, if he meant to say that it was the subsequent securitisation of the debt, then the derivatives applied to that then I wish he'd done so. It is inconceivable that a listener not already fully aware of this would have come away with the correct understanding. He made a similar error today in the first hour but this time referred to securitised debt as derivatives.

I'm not AJ bashing or nit-picking either. This goes to the heart of understanding the crisis and the roles played in creating it - something that the higher-ups do not want for the general public.

The fact is that if there were junk mortgages, wrongly AAA rated, repackaged with T-bills etc, sold on, securitised and traded - bad though that would be - there would not be this massive meltdown crisis. Some exposed institutions would be in trouble but we may not have even heard about it. Once you then introduce the ability (a derivative) to create massive debt on potentially small movements in these already toxic securities then once they blow then the derivative bubble based on them comes down to encompass everything.

I suppose what I missed was that classic AJ break-down which is easy to understand without being light on detail - maybe he'll do one on this subject soon.

[Librium]

A derivative is basically a bet, no?

[pac522]

Well, it was the Sunday show that originally prompted this post. In the first hour Alex defined a derivative as the repackaging of debt - clearly implying on several occasions that it was the repackaging and selling-on that made it a derivative product. He did add that there were many other types of derivative.

To be honest I thought the same thing when I heard the Sunday show but just assumed he meant that it was a mortgage backed security that was made in to a derivative. Sometimes Alex speaks to his audience as if they are in the know. And he has also said that time is short and he'd be speaking to us as if we were in the know. That it was too late to start explaining from square one because things were going to start moving fast.

Any way no one should base their knowledge off of just what Alex says. There are plenty of articles on his websites and plenty of good info here in the forum. But yes I will agree it would be confusing to some.

[heavyhebrew]

Alex Jones isn't fully literate in economics and financial terminology?

SHOCKING!

Seriously tho, call him and explain it. Informing the people is a cornerstone of a free and just people.
And derivatives is just a fancy way of saying bet or wager.

[Sundosia]

Why are you all making such a big deal out of this, he just wants to set things straight.

[MarquisdeFuk]

Yes I am trying to set things straight - but I don't seem to be doing a very good job.

To be honest I thought the same thing when I heard the Sunday show but just assumed he meant that it was a mortgage backed security that was made in to a derivative. Sometimes Alex speaks to his audience as if they are in the know. And he has also said that time is short and he'd be speaking to us as if we were in the know. That it was too late to start explaining from square one because things were going to start moving fast.

That is a very far-fetched assumption based on what was said. The fact is that most listeners are not in the know about this and nor is Alex to the extent that he should have been before trying to explain it. And, to clarify, a mortgage backed security is not "made into a derivative" - this is a misunderstanding. A derivative is created in order to "bet"  on the performance of a mortgage backed security (for this example).

[Godsent]

Isn't That were derive something from past performance, and then speculate on what it will do Derivative 

[pac522]

And, to clarify, a mortgage backed security is not "made into a derivative" - this is a misunderstanding.

I didn't mean made in to as to change in to, I meant a derivative or position is made upon that debt backed security.

Remember, Warren Buffet said that even he didn't understand the derivatives market and so stayed away from it. 

[Geolibertarian]

http://forum.prisonplanet.com/index.php?topic=64550.0

[MarquisdeFuk]

Remember, Warren Buffet said that even he didn't understand the derivatives market and so stayed away from it.  Wink

Sensible, but there's a big difference between understanding the basics of derivatives/ how they work, and understanding the derivatives market which I doubt anyone does. Most trading in derivatives is Over The Counter - private, no reporting, and completely unregulated. Through understanding the basics though, one can understand how this vastness of debt has been created and why we are all stuffed - unless....

 

[Baron Wankdorff]

 That was a very clear explanation of how (basically) derivatives work. Thanks, Lord Fuk.

But unless....what?