July 24, 2012
Are All Securities Created Equal?
There is a stark contrast between classic capitalism as defined by Adam Smith and Milton Friedman, and the packaging and bundling of derivatives and securities, the ugly cousin of capital creation. Stock and Debt are integral components of Capital formation. However, what happens to those instruments beyond the creation of Capital is not necessarily 'capitalism'. It becomes a different activity. The bundling of products becomes just that....bundling. Nothing is 'formed' anew per se. Instruments are merely repackaged. The initial purpose of capital creation was over. The 'capitalistic' exercise completed. What ensues with the CDOs and the CDSs, sub prime mortgages, etc. is merely residual activity. An activity created for commission and trading purposes of Wall Street. I maintain it is not capitalism. Once the stock or bond is sold into the market and the capital is raised, what occurs afterward to those items begins to place...(Read Full Post)