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BitCoin Gets a Futures Market
fireballrus writes "There is one more way to use your BitCoins rather than buying weed or socks. Recently, a Bitcoin Exchange called ICBIT quietly introduced a futures market, obviously using Bitcoins as its main currency. Gold futures trade roughly at 137 BTC/tr.oz and Sweet Crude Oil at 7.3 BTC/bbl. This may play a positive role in the Bitcoin economy which needs more ways to actually use coins instead of mining them." While this sounds intriguing, I'd like to hear a good case for why BitCoin makes sense in this context.
Um... no, you're wrong. They are insurance. Producers of commodities often can not afford the ups and downs of the market. Specifically farmers. Futures allow them to sell their crop at a set price, and then if the market crashes they are protected... also, if there's a spike in price they do not profit like they normally would.
Capitalism requires transparency. The problem with overly complicated financial products isn't the products themselves, its the lack of transparency caused by their complexity. When a bank sells you a derivative that's based on mortgages, that's fine. When the bank gets permission from the federal government to give out loans to people that can clearly not afford to pay them back, and fails to disclose that to you... that's when there's a problem. The banks realized what the government was asking them to do was insane, but they didn't want to tick off their benefactors. So they gave out the loans anyway, and then sold the risk off in packages designed to hide them.
Not really, no. The government told them to be more liberal in their risk assessment for first time buyers. The banks COULD have offered modest loans for starter homes that the borrowers probably could have paid back, but instead FREELY CHOSE to talk their least financially savvy customers into huge loans on McMansions and to bury those hot potatoes in complex financial instruments so they could foist them off on others.
It was all quite profitable to a select few and devastating to the world economy.
Don't drink the cool aid.
>When the bank gets permission from the federal government to give out loans to people that can clearly not afford to pay them back, and fails to disclose that to you.
That's not what happened here.
What happened was that we had people making loans that they could be sold to "greater fools," i.e., Wall Street.
-Joe Broker makes a loan to Alice - Banks don't make loans anymore, brokers do.
-Alice can't pay it back, but Joe Broker says it's OK.
-Broker doesn't give a shit because he gets a commission for each loan sold. Falsified paperwork EVERYWHERE.
-Broker sends the paperwork to the bank. The bank doesn't give a shit because they can sell the loan to Wall Street.
-Wall Street separates and chops up the mortgages and securitises them by creating securities with different levels (tranches) in the security. These are the "Mortgage Backed Securities." AAA on the top, junk on the bottom.
-These are then sold as if they are all AAA to (see where this is going?) to retail and institutional investors.
-They are considered *cash equivalent* by nearly everyone, except people at places like Magnetar.
-The whole house of cards fell in 2007 and the people holding the bag were people like you and me and our retirement funds.
Meanwhile everyone in the entire system from the broker through Wall Street gets away with not even a slap on the wrist.
But that's not all!
In the chain of passing the buck, at each level, the transfers of these mortgages weren't (and still aren't) handled correctly. Hundreds of thousands, maybe millions, of mortgages have been passed along without the required good paperwork making the servicers of the mortgages in these loans *not* valid mortgagees. And when the loan goes belly up, and a servicer forecloses, there is often either fraudulent paperwork or no paperwork at all and *no right to foreclose*. And in the confusion, there have been people making monthly payments to servicers that don't even have the right to take money for the mortgage at all! That's what the whole robosigner scandal is about, and robosigning is still going on.
And to make it even worse, people have been kicked out of their homes while not even *having* a mortgage to begin with!
http://www.tampabay.com/news/business/realestate/bank-of-america-forecloses-on-house-that-couple-had-paid-cash-for/1072632
It is fraud on a national scale, and it was *not* at the government's prodding. Regulation after regulation was ignored. Rampant fraud was committed by brokers, securitizers, banks, everyone who should have done due diligence.
And the dearth of people going to prison for this shit is why we have Occupy Wall Street.
You have oversimplifed it and you have blamed the wrong people.
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BMO