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by

July  , 2002.
Centre for Research on Globalisation (CRG),  globalresearch.ca ,   July  2002

Global Outlook , Issue No 2   9-11: Foreknowledge or Deception? Stop the Nuclear Threat. Now available (for details click here) .

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It should be understood that the ongoing financial meltdown, while marked by an "evaporation of paper wealth", is also conducive to a dramatic shift in the distribution of wealth within the corporate and financial establishment. Moreover, the stock market meltdown has led to decimation  of household savings and pension funds. In other words, these savings are appropriated and transferred into the hands of powerful financial institutions.

Speculative trade, plays a crucial role in this process. The use of speculative instruments (options, hedges, futures) also means that powerful financial actors, actually "make money" when the stock markets collapse. In other words, the Wall Street financial establishment actually has a vested interest in sustaining stock market instability.

Amply documented, these powerful financial actors are able to move the market up and down, and at the same time they make money through the use of these speculative instruments. 

A "option" on the Dow Jones index does not imply any paper wealth transaction because it is not linked to the ownership of stock but to the movement of the stock market index.  A "put option" is a speculative "bet" that the market will go down. conversely, a "ask option", is a bet that it will go up. 

What this means is that when the Dow Jones goes down, billions of dollars are transferred to those who had previously purchased "put options" on the Dow Jones index.  In other words, in a bitter irony, large amounts of money are actually made when financial makrets collapse.  A similar process may also take place in currency markets. A common procedure is so-called short selling of national currencies as occurred in the Asian crisis (1997), Brazil (1998-99), Turkey (2001).

Needles to say, none of these derivative trades is accounted for in so-called paper wealth transactions, because they do not imply a sale/purchase of stocks. 

When the Dow collapsed by 5 percent as occurred on July 23, billions of dollars of paper wealth were indeed wiped out. On the other hand, that same day, billions of dollars of put options were collected, which means cash rather than paper wealth. When billions of dollars of paper wealth evaporate, billions of dollars of speculative trade money is also transferred (not created) into private money wealth, namely cash.

When the Dow went up the following day (24 July) in what the press described as "a stock market rally" wiping out the losses of the previous day, billions of dollars of "ask options" were collected, most probably by many of the same institutional speculators who had one day earlier cashed in on their put options.

In other words, these speculators shift their ask and put strategies from one day to the next, using inside information.  In a bitter irony, stock market turbulence leads to increased accumulation of money wealth, into fewer and fewer hands.  "Inside information" on factors or political events (eg. the arrest of the president of Adelphi and President Bush's speech on July 24th is one example of how the the market rebound upwards in the wake of its meltdown on the previous day) is the basis upon which this wealth is accumulated. 

Impacts on the real economy,

 

banruptcy, decimation of consuemer markets, layoffs, plant closures, decimation of savings and pensions funds, productive wealth is destroyed, but the command over these productive resoruces is transferred into the upper echelons of the financiaql system, bona fuide corproations which do not routinely speculate or conduct insider trade, are of course also the victims of this proicess.

 

 

 

 DJ INDU AVERAGE (CBT:^DJI )  - Trade: N/A
Range: 1d | 5d | 3m | 6m | 1y | 2y | 5y | max Type: Bar | Line | Cdl Scale: Linear | Log Size: M | L
Compare: ^DJI vs.     S&P    Nasdaq    Dow    
Chart

 

 

 

 

 


Copyright   2002. For fair use only


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Global Outlook , Issue No 2   9-11: Foreknowledge or Deception? Stop the Nuclear Threat. Now available (for details click here) .

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