Friday, April 1, 2011

Such Stuff As Dreams Are Made On

The hedge fund managers take home real money. Last year, 25 of them took home $22 billion in salaries. They trade in toilet paper with ridiculously high nominal values. In New York City alone, assets nominally valued at well over a trillion dollars are traded daily. The Treasury Dept. estimates the nominal value of derivative securities held in American portfolios at over $600 trillion. That's roughly 50 times American GDP.

So, they take commissions in real money off of trades in toilet paper, and, as long as everyone agrees to keep the obscene game of musical chairs going, all is sort of well. But they can't do that unless they restrict their markets to a self-referential acceptance of asset valuation at wild, impossible remove from reality. A recipe for disaster, that. And the hedge fund managers' income, and countless other exactions of real money from toilet paper, are extraordinary diversions of real resources, while those receiving them perpetuate the illusion, keep the game going. When the inevitable catastrophe recurs, it won't be the real-money people that'll get hurt.

But, then, you knew that....

Shakespeare's Prospero, on derivative securities, presciently:

These our actors,
As I foretold you, were all spirits, and
Are melted into air, into thin air:
And like the baseless fabric of this vision,
The cloud-capp'd tow'rs, the gorgeous palaces,
The solemn temples, the great globe itself,
Yea, all which it inherit, shall dissolve,
And, like this insubstantial pageant faded,
Leave not a rack behind.


Ruth said...

You left out the 'April Fool' at the end. I was so hoping....

ProfWombat said...

Foolishness of this sort is hardly restricted to April, m'dear...