Synthetic Derivatives--What are They and Who Cares?

[divideandconquer]

Synthetic Derivatives--What are They and Who Cares?

A few weeks ago, the Senate interrogated the guys from Goldman Sachs, a Wall Street so-called "Investment Bank" The argument was about regulating Synthetic Derivatives. HUH? What are those and why does it matter anyway?

Here’s the easiest way to think about it - there is a real Football league made up of real football teams. In each game played there is a winning team and a losing team. And, in each game players do good or bad.

Then we have a Fantasy Football League, made up of the same teams but with the players on each team made up of peoples' "dream team" - players taken from any team and put together (only on paper). Based on how each player and the REAL TEAM he plays on does each week, these made up teams are ranked. People actually bet on these MADE UP TEAMS- "FANTASY TEAMS"- which are DERIVED from the real teams. A Fantasy League is a DERIVATIVE.

Now imagine a second "Fantasy Football League" made up of the same players and BUT instead being based on the outcome of the Real Teams, it’s based on the outcome of the FANTASY TEAMS and ranked according to how the players and the FANTASY TEAMS do each week. This is a Synthetic Derivative - it’s a bet about how well another bet will do! Will Pete win or lose on his bet on Fantasy Team #1. That’s what is being bet on.
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<http://finance-for-us.blogspot.com/2010/06/synthetic-derivatives-what-are-they-and.html>

This is what American capitalism now represents, not building a better mousetrap, not financial prudence, not new frontiers, no, just endless gaming of the system.