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This is just a simple copy and past off of Wikipedia on derivatives.  It's nothing to analyze, just soak it in and then tell me how it feels knowing the only people who got hit with the bill were hard working Americans.  Dump old, Acquire interim admin, Evals across board. derivatives

Source: Wikipedia/Derivatives

See also: List of trading losses

The use of derivatives can result in large losses because of the use of leverage, or borrowing. Derivatives allow investors to earn large returns from small movements in the underlying asset's price. However, investors could lose large amounts if the price of the underlying moves against them significantly. There have been several instances of massive losses in derivative markets, such as the following:

        * American International Group (AIG) lost more than US$18 billion through a subsidiary over the preceding three quarters on Credit Default Swaps (CDS).[25] The US federal government then gave the company US$85 billion in an attempt to stabilize the economy before an imminent stock market crash. It was reported that the gifting of money,which came to be known as the "Back door bailout" of America's largest trading firms, was necessary because over the next few quarters the company was likely to lose more money.
        * The loss of US$7.2 Billion by Société Générale in January 2008 through mis-use of futures contracts.
        * The loss of US$6.4 billion in the failed fund Amaranth Advisors, which was long natural gas in September 2006 when the price plummeted.
        * The loss of US$4.6 billion in the failed fund Long-Term Capital Management in 1998.
        * The loss of US$1.3 billion equivalent in oil derivatives in 1993 and 1994 by Metallgesellschaft AG.[26]
        * The loss of US$1.2 billion equivalent in equity derivatives in 1995 by Barings Bank.[27]
        * UBS AG, Switzerland’s biggest bank, suffered a $2 billion loss through unauthorized trading discovered in September, 2011.[28]

This comes to a staggering $39.5 billion, the majority in the last decade after the Commodity Futures Modernization Act of 2000 was passed.

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Comment Preferences

  •  Derivatives have been around for a long time (0+ / 0-)

    and many people made money on them. For example, airlines routinely hedge against changes in fuel prices. A lot of these losses are at European companies that have nothing to do with the law you're talking about. And what kind of bill were you hit for e.g. the loss at Metallgesellschaft AG?

    •  "Derivatives" (1+ / 0-)
      Recommended by:

      Covers a lot of (evil) ground. Hedging fuel, which I assume the supplier is sure to have is different from buying fuel contracts when you have no earthly plave to store the stuff, much less use it.

      CDSs are/were nothing but insurance on your neighbor's house. Insurance on winning the roulette table with red48. The taxpayers covered the gambling debts of a bunch of physics majors who made fortunes crunching numbers about stuff they didn't understand.

      All Bush Sr's fault, these number whizzbangers would be in Texas playing with the super collider if he hadn't killed it.

      •  Most people who would have worked on collider (0+ / 0-)

        ended up in either CERN or Fermilab anyway. People who ended up on Wall Street were mostly math majors, not so much physicists (although there were plenty of both). I agree about CDSs. That was going way beyond the usual hedging.

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