kudlow....ROTFLMAO!!! THE SAME GUY THAT SAYS THAT THE MARKET IS NOT A ZERO SUM GAME. THERE IS GROWTH INVOLVED!! LOL I KNOW i KNOW, BUY HIGH AND SELL HIGHER RIGHT? what will they come up with next? oh nigeria. another flashback from the 70s.
You got that right Hydro! The Street is the best marketing machine in the world. Take crap, break it apart, repackage it into severy shiny new boxes, and price and sell it as gold - and make sure to take fees and commissions at every point of the way. Then repeat. Nice work if you can get it. As to the idea that PHDs and quants at pension funds, money management firms, and hedge funds are the smartest guys around, I would question that. I remember when Orange County blew up - anyone in the fixed income markets at that time knows they got exactly what they deserved - no return without risk. Same could be said of everyone else that blew up from derivatives trades over the years, including all of those hedge funds etc. The smartest guys in the room work on the Street for the bd's and investment banks that create and sell the product. When was the last time an American brokerage house blew up from holding the product they sell? Last time I checked, it was the Street and the Fed that bailed out LTCM - not the other way around. Ever notice how the Street, when caught redhanded, always says "neithers denies the allegation, nor admits wrongdoing" - and then shells out millions in fines, penalties, and damages? The casino must pay off the cops, that way they don't shut down the whole game. The derivatives market is a massive spider web of trillions of dollars in notional value, the majority of it which is off balance sheet. If there was ever a sector of the Street that desperately needed oversight, disclosure, and regulation, the derivatives market is it. Problem is, the regulators and the government aren't smart enough to see the massive systemic risk that has been created in the markets.
.. Yes, of course you remember Orange County and the various other high-profile derivatives-related losses over the years. What you don't remember is the hundreds of millions of people who directly or indirectly benefit from the increased fluidity of the financial markets that derivatives has engendered. As to why you remember only vivid, well-publicized events.. read a book on behavioral economics, and you'll understand.