Financial derivatives grew from obscurity to $108 trillion notional value in three decades

Evidence

In 1970, the market in financial derivatives in the United States and elsewhere was very small by today’s standards (there are no reliable figures for its total size), and to trade many of today’s derivatives, such as the Merc’s S&P 500 futures, would have been illegal. By 1987, derivatives played a central role in the U.S. financial system, which is why the fate of the Mercantile Exchange was so critical to that system. Derivatives markets were also beginning to emerge around the world. — Donald MacKenzie, An Engine, Not a Camera, 31 (#corroborates, via linked claim)

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 (#expands, via linked claim)

Categorization

• XREF: connects to: Derivatives evolved from risk-hedging tools into a dominant speculative asset class — Max Haiven, Cultures of Financialization, 135; Derivative markets grew from near-zero to systemically central in seventeen years — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 31; Financial derivatives grew from nothing to $108 trillion by 2000 — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 23

Related

• Financial derivatives grew from nothing to $108 trillion by 2000 (similarity 0.93)
• Derivative markets grew from near-zero to systemically central in seventeen years (similarity 0.91)
• Derivatives evolved from risk-hedging tools into a dominant speculative asset class (similarity 0.88)
• Derivatives let investors tailor risk exposure precisely and have become tradable commodities themselves (similarity 0.87)
• Nominal derivatives totals overstate their significance by roughly a hundredfold (similarity 0.86)
• Notional derivatives totals exaggerate economic significance by roughly a hundredfold (similarity 0.86)
• Derivatives are priced on abstractions, not property, and dwarf the real economy (similarity 0.85)
• Derivatives notional amounts vastly exceed their underlying market values (similarity 0.84)
• Derivatives are speculative techniques betting on future asset-price movements (similarity 0.84)
• Derivatives trading of $273 trillion notional would be inconceivable without pricing theory. (similarity 0.83)
• Derivatives let investors trade an asset’s attributes without the asset itself (similarity 0.83)
• Modern derivatives increase exposure to volatility to profit from it. (similarity 0.81)
• Financial derivatives now substitute for physical and organizational means of managing corporate risk (similarity 0.80)
• Cash-settled derivatives were legally classed as gambling in the US until the 1980s (similarity 0.80)
• Interest-rate swaps made up nearly half of global derivatives notional amounts in 2004 (similarity 0.80)

Broader Connections

• Derivative markets grew from near-zero to systemically central in seventeen years #corroborates (0.86) — Donald MacKenzie, An Engine, Not a Camera, 31
• Derivatives evolved from risk-hedging tools into a dominant speculative asset class #expands (0.80) — Max Haiven, Cultures of Financialization, 135