Derivatives evolved from risk-hedging tools into a dominant speculative asset class
Evidence
As Martin (2007), LiPuma and Lee (2004) and Bryan and Rafferty (2006) note, the emblematic construct of this new system is the “derivative,” a financial asset which is essentially a tradable agreement between two parties to make a specified exchange at some future point. Such an instrument was initially intended to help manage risk by allowing purchasers of a certain security or asset to lock in prices today, so as not to be caught off gaurd by future price fluctuations. Yet, in a moment when finance is driven by intense competition between markets, derivatives have become the idiomatic asset of a financialized economy, providing opportunities for speculators to gamble on future turns in the price of nearly any underlying economic reality (say, the market in sub-prime mortgages, the price of oil, or the potentiality of devastating weather systems). Meanwhile, finance today is characterized by the securitization of many such gambles into portfolios and new, synthetic derivative products made up of potentially tens of thousands of fragments of other assets or their derivatives, circulating at a sickening velocity between major investment banks and throughout digitized world markets. — Max Haiven, Cultures of Financialization, 135
Categorization
- XREF: Bryan and Rafferty (2006) on derivatives is cited — connects to the broader financialization literature the reader is building toward for deWaard. — connects to: Derivatives inverted from insurance into engines that increase volatility exposure. — Aris Komporozos-Athanasiou, Speculative Communities: Living with…, 91; Financial derivatives grew from obscurity to $108 trillion notional value in three decades; Derivatives are speculative techniques betting on future asset-price movements — Max Haiven, Cultures of Financialization, 153 (+7 more)
- DEFINE: Definition of the derivative as a tradable agreement to make a specified future exchange, and its key function of gambling on nearly any underlying economic reality.
Broader Connections
- Derivatives let investors tailor risk exposure precisely and have become tradable commodities themselves
#expands(0.85) — Max Haiven, Cultures of Financialization, 478 - Derivatives are speculative techniques betting on future asset-price movements
#qualifies(0.80) — Max Haiven, Cultures of Financialization, 153 - Modern derivatives increase exposure to volatility to profit from it.
#exemplifies(0.80) — Aris Komporozos-Athanasiou, Speculative Communities, 59