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May 10, 2007


Richard Murphy:

As for derivative traders, we simply don’t need them. Gambling isn’t smart.

So the transference of risk, from farmers, from commodity producers, from mortgage holders, to those better able to carry it, professional investors, is of no value?

All futures, options and swaps markets are unneeded?

And people listen to this guy, take him seriously, on matters economic?

May 10, 2007 in Economics | Permalink


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The securitisation of risk is one of the most astonishing examples of financial ingenuity in human history. It's up there with fractional reserve banking and leveraged buyouts. The 'gambling isn't smart' line is just flabberghasting. From a games-theoretic point of view, gambling can be very smart indeed. Murphy qualifies his statement in comments: "...this market is largely unregulated. The risk it creates is, I suugest [sic] bigger then [sic] the benefit it confers as a result." We are supposed to believe that derivatives traders engage in an activity where the risk is greater than the return. An activity that generates annual turnover amounting to the thick end of a QUADRILLION dollars is just a bunch of fly-by-nights having a punt? It is to laugh.

Posted by: David Gillies | May 10, 2007 4:48:02 PM

If Murphy genuinely believes that markets create risk then he is clearly too stupid to open his mouth in public.

The risk comes from activities in the real economy: will the test bore strike oil or not? Will the harvest be good or lean? The financial markets just determine how the risk is parcelled out.

It's rather pathetic that a "graduate in Economics and Accountancy" is ignorant of one of the most fundamental principles of economics.

Posted by: xj | May 10, 2007 8:17:13 PM