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News about a very important asset class. Important because it facilitates fraud.
The banking/investment establishment, knowing all too well their own predilection toward expanding debt as a principal method of encouraging (haha) ‘prosperity’, embraced the expansion of derivative instruments quite literally from the date of the ebormous facilitation of derivatives trading, in this case ‘options’ on shares which occurred in 1973. Financial institutions, although a bit slow on the uptake, soon embraced this latest foray into expanded leverage and jumped in with both feet. One reason for this was what I call “automatic credit”, namely, the very act of trading an option creates perforce an increase in total market leverage.
Leverage, throughout all financial history, has been abused, usually to the point of, or past, collapse. How many examples would you like? (careful, pls, I can provide dozens).
In the 20th century, we saw the spectacular credit-fueled (i.e. levered) rise of the Dow averages in the 1920s and the widely celebrated (and HUGELY levered) rise of LTCM from 1994 through 1998. If you’re of a more historical turn of mind, just thumb through all the infamous ‘bubbles’ (tulips, South Sea, Mississippi land, check what you like).
‘Important’ asset class, eh? Well, I should hope to kiss a horse. THe problem occurs when (and in this case already has occurred) this ‘important’ asset class becomes the dominant asset class. Mae West put it well: “I can resist anything but temptation.”
More’s the pity, the same is true of the banking/investment class.
BTW, still haven’t heard from Pete. I **do** hope he’s well.
Best to you,