pfl - maybe someone will explain it in lay-terms by the time I get back...
Not completely equivalent, but the basic idea is that we cannot pay what we owe. Just cannot. The crash is inevitable, and will be severe. Trying to delay the crash makes it worse.
Anyway, the Japanese invented the futures and options markets centuries ago to even out the cost of rice throughout the year.
It seems rice was so cheap at harvest, the farmers couldn't afford to grow it, and it was so expensive later in the year, the consumers couldn't afford to buy it.
The futures market was invented to solve this.
People with money to invest would pay farmers a sum of money on the promise to deliver rice at a certain price later in the year from harvest, more money than the farmers could sell for at harvest, but less than what the investors speculated the price would be later.
The speculators then sold the rice future to a merchant who would purchase the rice at the cost agreed upon with the farmer.
The farmer made more money, the consumer spent less than they would have later in the year.
All of the commodites we use, fuel oil, pork bellies, gasoline, wheat, corn, etc., are thus traded in this manner.
Futures are traded based on a delivery price for within a certain period of time, 6 months, a year, etc. Should the price not go up to at least the level agreed upon in the contract, plus a little, the contract become worthless at the end of the time, 6 months, etc.
Should the market price go up considerably, the holder of the contract can make proportionately more money.
There is a secondary market now, called the "options" market.
Options are traded on stocks, commodities futures, currency, etc.
Option trading is a way to make or lose a lot of money in a hurry.
An easier way to understand it is to think of real estate.
Suppose you know of a parcel of land for sale. You also know a freeway is going to be built there with a ramp right next to the property, perfect for a convenience store, etc.
The property owner doesn't know this.
You offer him a sum, say $1000 for the option to buy the property for $100,000 in the next year.
The development happens, the property becomes worth a million dollars. You exercise your option, buy and sell the land, making 900,000 less the thousand you paid for the option.
You could also sell your option, for perhaps $900,000 to the company that wants to build a store.
On the other hand, suppose the greenies stopped the freeway over some stupid mouse or newt.
You're only out your $1000.
In stocks or commodities this kind of option is called a "call".
You can also bet on the stock or commodity goung down. This is called a "put".
It doesn't take a great deal of money to control an option on a lot of stock or commodities.
The options, like futures are only for a certain amount of time, more often 6 months or a year.
There are longer options, called "leaps", good for 5 years.
Options are used by traders for mutual funds, banks, etc., both to make more money and to protect their investments.
Suppose you buy a thousand shares of a stock, with the idea it's going to appreciate.
At the same time you buy some puts on the stock, so you make money in case the value of the shares goes down.
If the stock goes really high or really low, you make money. If it wallows near what you paid for it, not only do you not make money, you lose what you spent on the puts to cover your shares.
Not many people understand options and futures. It isn't taught in universities to my knowledge. Successful traders are either self taught and/or go to classes run by other successful traders.
Idiots running banks and other institutions who have business degrees don't understand this.
They hire business or economic school grads thinking they do understand it.
These highly educated high self-esteem ignorant fools then trade with big money, and eventually blow it.
One think real option traders understand is you have to factor in losing.
You can turn a small amount of money into millions in a short time, and you can turn millions, or in the case of the bankers, trillions into nothing even faster.
It's a fun roller coaster ride, but you have to realize it's just educated gambling, a little better than going to Reno or Vegas, but not much.