Derivatives are priced on abstractions, not property, and dwarf the real economy

Evidence

The derivatives market has swelled in a nearly exponential fashion: in 1970, it was valued in the millions; by 1980, about 100 million; by 1990, nearly 100 billion; by 2000, nearly 100 trillion; approaching 2010, it was estimated by the SEC to be over 500 trillion. … Measurements of the derivatives market are inherently flawed; these contracts do not involve ­property itself, but merely a price derived from the underlying asset, and thus the amount circulated in these markets is abstracted. Traders don’t possess the money involved in the trade, merely collateral that assures a broker they’re trustworthy to make the trade. Each trader is making hundreds or thousands of trades, maybe even more using software (known as high-frequency trading or algorithmic trading), in varying positions, while other traders bet the opposite, assembling this massive edifice that sits atop less abstracted relations. The total amount vastly exceeds the total quantity of the world’s physical currencies. — Andrew deWaard, Derivative Media, 158

Categorization

• DEFINE: Defines derivatives concretely as contracts on a price derived from an underlying asset, not on property itself, which is the mechanical foundation the reader must understand to trace instruments.
• DEEPTHINKING: The image of a massive abstracted edifice of collateral-backed wagers atop less abstracted relations, exceeding all physical currency, is a paradigm-shaped characterization of financialization worth sitting with.