I'm not saying if it's right or wrong, but so much of that article is taken out of context (this isn't the first time we've seen something like this). People hear the word 'derivatives' and automatically think 'exorbitant risk' when in fact, that's the very thing that those derivatives are trying to mitigate.
Anyhow a lot of this comes back to Glass-Steagall, though. There needs to be cap limits on how much leverage a bank/brokerage can put on itself without touching commercial banking deposits...
But a shadowy market that 'mitigates risk' to the tune of 3 times the size of the global economy???? And this is only the 9 biggest banks...derivatives are hidden leverage. potentially losses and potentially gains, but exposure regardless. Should be a fun summer..
if you owned an oil well and it cost you $100 to get each barrel of oil out and the price of oil is $95 what would you do?
you wouldnt pump your oil until the price of oil reached a level where you would make a reasonable profit.
thats what we call a "real option." most synthetic options serve to give the holder a similar risk mitigation opportunity to this.
options aren't a bad thing. most times they are good things.
i'm not convinced that more regulation of synthetic options will be helpful. i actually believe it will aggravate the problems caused by "bad" options.