[almond]

Your comment makes me nostalgic for the times when much of anything was traded based on an objective assessment of its underlying value. Despite the crash of 08 and subsequent deleveraging, we are still several generations removed from trading on fundamentals. Trading today is more about AI trader bots battling each other for a fraction of a cent of spread in the millisecond timescale than making a rational projection about the future profit potential of the company at the year or decade timescale. Like most other derivatives, this is a side bet, and Wall Street loves offering side bets on anything. You can even buy weather derivatives to hedge against rainy days, if that matters to you.

[noname123]

I hate to defend the Street because most people in the industry are self-righteous duches. But then again so are most people who think that their latest RoR Web2.0 project are going to change the world, just poorer duches.

Just facts,

1) Creating a derivative market on Facebook employee options creates value for the Facebook employees because it means that they can now sell their options in a more liquid and better-priced market for cash (to potentially finance their kids education, help buy for a house or for hookers).

2) High frequency/automated trading tightens the bid-ask spread of stocks and does away with the "old boys" network of market-makers; making the purchase of stocks for both mutual funds/retail investors cheaper by $0.02/share-$0.05/share; at a volume of 4+ billion shares daily average volume. These cents add up to savings for market participants. But these machines could also turn around and manipulate the market and help save for hookers for traders/programmers who run them.

3) Weather derivatives, like other derivatives do have intrinsic values. For hedgers (such as hotels/ski slopes/airline industry/agriculture harvest that could be severely affected by inclement weather), they are insurance policies against risk that they are not willing to bear and help ensure that these businesses stay in business. However, if you have an army of Physics PhD who could model the risk/probability in weather derivatives; you could sell these insurance policies and make money to get hookers.

[arethuza]

That's the surprising thing I took away from reading quite a lot about the financial crisis - most of the trading makes perfect sense, and seems quite reasonable, when looked at in isolation.

In "A Colossal Failure of Common Sense" there is a description of trading in distressed corporate bonds - I always wondered how you actually make money in bond markets and this was an interesting (to me) example of a scenario where what they were doing was obviously profitable and useful.

[adw]

3) http://weatherbill.com/ (army of ex-Googlers, no direct business relationship but we have investors in common)

[roel_v]

Your ideas on using financial markets to pay for hookers are intriguing to me and I wish to subscribe to your newsletter.