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Originally Posted by G-man
if you were to discuss derivatives and everything evelse, then from my discissions with sheikhs, they all deem it haram simply because they fail to first udnerstand what derivatives are and what the yare used for. Authoritive figures just look at the compelxity of financial instruments and deem it haram. Now maybe being conservative like that is the way to go, but I beg to differ.
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I get your post and most of it makes sense. This is the part where the sheikh definitely got it right. With stocks you own a piece of the business or company. By adding up all the stocks you get the actual net worth of a company. Problem with most derivatives is, although their value is derived from the underlying asset (by definition), their notional value is allowed to far exceed the value of the underlying asset. And this is a huge problem. With credit default swaps (CDS) for instance, you could have a million dollar company and sell a billion dollar worth of CDS for the company. Each CDS is a contract allowing the holder of the contract to make money in the event the company fails to pay off its debt.
I remember when the financial crisis happened the notional value of all derivatives was worth over a quadrillion dollars, which is a thousand trillion. This amount was 20 times the size of the world economy at the time. In a world of unregulated derivatives most people are bound to lose a lot of money. And the leader of the free world just paved the way for it to happen again by repealing Dodd-Frank
