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Comment Re:Can somebody 'splain this? (Score 2, Insightful) 361

I have always believed that the vast majority of today's financial instruments have been invented out of thin air for no reason other than to ultimately ensure the employment of bankers and brokers.

Actually, many of them have a good basis in logic, but are used beyond their original purpose.

For example.... I see absolutely no reason why a single account could not offer all those features.

Part of the reason there are individual companies that separated items like brokerages and commercial banking is historical structure created in the Great Depression, known as the Glass Steagall Act

Other responders to your post have pointed out various specific details, e.g. reason for commercial paper, but let me cover a more general point of view on why so many different products exist: Risk.

The issue, however, is that risk doesn't come in only one form. There are different types of risk:
- Default Risk (if a company goes bankrupt, you don't get back your principal)
- Inflation
- Interest rate risk (if interest rates change, then the value of underlying loans change)
- Tax Rate Risk (different tax rates due to different income or time)
- Counterparty Risk (risk of entering into a contract, but the other party failing to fulfill the contract)
- Secured nature of the debt (recovery in case of default)
- Opportunity cost (cost of not doing an alternative with the money)
- etc.

Looking at various products we can see how they are different. An IRA vs. a Roth IRA actually transfers the Tax Rate Risk onto the government (you pay a known tax rate, and the unknown benefit or penalty due to the future difference is absorbed by the government)

A TIPS (Treasury Inflation Protected Security) vs. a normal Bond issued by the government transfers inflation risk onto the government (presumably the normal bond is accounting for perceived inflation in the offering price, but the TIPS accounts for real inflation, thus allowing one to eliminate the risk of the perception of future inflation being incorrect.

We can see today that today's 4 week Treasury Bill Auction resulted in zero yield (give money to the government for 4 weeks, no interest). This presumably would mean the return one could get in a non-FDIC insured bank account (over the current $250K limit) is entirely bankruptcy risk premium.

Also there are organizations that do market clearing of bonds and stocks that absorb counterparty risk. Part of the problem with credit default swaps was that the holders of those products actually bear the counterparty risk, as they are not regulated like other products. (When combined with a lack of market data on quantity and concentration of the risks around default of bonds, this led to one of the underlying issues in the problems we have right now)

Lastly, there are also "positive" values that are priced into different financial products, such as recovery in case of default. That's why secured loans of [statistically] appreciating assets (e.g. home mortgage) are lower rates than loans on depreciating assets (e.g. automobile) and those are lower than unsecured personal loans. Same reason bonds will maintain value longer than preferred stock.

As a specific example of what is good (and bad), look for a moment at interest rate swaps. They actually serve a valuable purpose, in allowing an investor (or the loaning company) to convert a variable-rate instrument into a fixed-rate one (or vice versa). This is valuable to companies to be able to "lock-in" lower interest rates when rates fall, for example. What is risky is when someone speculates on interest rate swaps without having an underlying asset. This results in significant leverage that can be wiped out very quickly if interest rates (in this case) move unexpectedly in the "wrong" direction.

If you lay out the different forms of risk (to both parties in a transaction) and level of security in a loan, I'd suspect you'd find very few financial instruments that significantly overlap (There will be a few, but in many cases, those can be differentiated by size, e.g. commercial paper vs. personal loans). The problems come in speculating on items to make money.

Privacy

Vista is Watching You 458

greengrass writes "Are you using Windows Vista? Then you might as well know that the licensed operating system installed on your machine is harvesting a healthy volume of information for Microsoft. In this context, a program such as the Windows Genuine Advantage is the last of your concerns. In fact, in excess of 20 Windows Vista features and services are hard at work collecting and transmitting your personal data to the Redmond company."
Patents

Submission + - Microsoft vs AT&T Arguements

weiserfireman writes: "The US Supreme Court heard arguements today in the case of Microsoft v AT&T. The transcript is available at http://www.supremecourtus.gov/oral_arguments/argum ent_transcripts/05-1056.pdf.

The case revolves around an AT&T patent for voice recognition software. The code was included in Microst Windows. Microsoft already agreed to damages for infringement for copies of Windows distributed in the United States. AT&T argues that Microsoft also owes them for damages from copies of Windows distributed overseas. The key in this case is that there are no foreign patents involved, only a US one. The copies of the Windows were produced overseas from "Golden Disks" provided by Microsoft from the US.

AT&T claims that because the code and the Golden Disks originated in the US, all subsequent foreign copies infringe upon their US Patent. It is a novel case with potential liabilty for more companies than just Microsoft.

There is some interesting exchanges between the judges and the lawyers. It is clear that the judges haven't thought about software very much, but are adept and building anologies. The Lawyers didn't seem to really understand the technology and their anologies were very funny.

At one point one of the justices said "We've never ruled on software patents before, don't we have to rule that software is patentable to decide this case?" The lawyers desperately tried to steer him away from that question. Both sides have too much to lose to want an answer.

Based on the questioning and the laws presented, I don't think AT&T has a chance. At best Microsoft is liable for the master copies provide to overseas manufacturers, but not any subsequent copies that are produced overseas."
Power

Submission + - Inflatable mirrors could cut solar cost to $0.29/w

Damien1972 writes: A new technology using inflatable mirrors could dramatically cut the price of solar power to around $0.29 per watt, making the renewable energy source cost competitive with coal and other fossil fuels. The tensegrity-based concentrated photovoltaic system could open up vast areas of the United States for solar farming, whereby farmers could produce both agricultural products and clean energy. The technology has been developed by CoolEarth Solar, based in Livermore, CA.
Space

Submission + - No Proof of Water on 2 Distant Planets

RebelSponge writes:
The NY Times has a story up regarding the lack of proof of water on two distant planets. "Astronomers said today that the first examinations ever of the atmospheres of planets orbiting other stars was most noteworthy for what they didn't see — namely water, a substance predicted by virtually all theories of planet formation, not to mention the essential ingredient for life as we know it."
Microsoft

Submission + - Ballmer repeats threats against Linux

daria42 writes: Steve Ballmer has reissued Microsoft's patent threat against Linux, warning open-source vendors that they must respect his company's intellectual property. In a no-nonsense presentation to New York financial analysts last week, Microsoft's chief executive said the company's partnership with Novell, which it signed in November 2006, "demonstrated clearly the value of intellectual property, even in the open-source world."
Software

Submission + - VR used to treat US soldiers with PTSD

dhardisty writes: "Researchers at the University of Southern California have created a virtual reality program 'that simulates life in the war zone for Iraq veterans suffering from conditions such as post-traumatic stress disorder (PTSD).' The program incorporates wrap-around vision, sounds, physical sensations, and even smells. It is used to support exposure therapy, an empirically supported cognitive behavioral treatment for PTSD."
Microsoft

Submission + - Standards Bodies being lobied regarding OpenXML

EreIamJH writes: The Standards Blog reports on a complaint from the South African Bureau of Standards (SABS) included in its response to the MS-OpenXML draft. SABS complains that it is sick and tired of being pressured by special interest groups trying to get approval / stop approval for proposed phony standards:

The fact that some consortium has published a document that they refer to as a standard does not automatically imply that it has any sort of widespread industry acceptance. The fact that the publisher might claim international usage or acceptance is not longer a valid reason in these days of large multinationals, and the SABS has previously been approached by local branches of multinationals to vote in support of such PAS submissions, even if we have no local industry involvement or membership in the appropriate JTC
As a result SABS has dug its heels in, and will be automatically voting against all such future submissions.
Power

Submission + - Programming the SPE's of Sony PLAYSTATION 3

IdaAshley writes: Take even greater advantage of the synergistic processing elements (SPEs) of the Sony PS3 in this installment of Programming high-performance applications on the Cell BE processor. Part 2 looks in depth at the Cell Broadband Engine processor's SPEs and how they work at the lowest level, while Part 1 showed how to install Linux on the PS3 and explored a short example program.
Privacy

Submission + - Scientist make quantum encryption breakthrough

Madas writes: "Scientists working in Cambridge, England have managed to make quantum encryption completely secure by putting decoy pulses in the key transmission stream. According to the story this paves the way for safe, encrypted high-speed data links. Could this allow completely private transmission of data away from snooping eyes and ears? Or will it mean film studios can stop movies from being copied when travelling on the internet?"
Sponsored by Intel

Vendor Intel: Open source drew us to Solaris 1

Intel recently decided to add Solaris to its list of supported operating systems. What's behind the decision? Open source . "Under a new partnership inked with Intel, Sun Microsystems will optimize the Solaris operating system (OS) for the Intel platform, and begin shipping Xeon-based systems in the first half of 2007. Sun and Intel will also collaborate in joint marketing, design and engineering efforts."
Wireless Networking

Submission + - Boeing Cuts 787 Wireless System-Goes Wired

K7DAN writes: "It appears that state-of-the-art connectivity in Boeing's newest aircraft means a wired, not wireless network. The Seattle Times reports that Boeing has abandoned plans to bring entertainment and information to passengers through a wireless system in its 787 Dreamliner due to possible production delays and potential conflicts with other radios services. A side benefit is an actual reduction in weight using the wired system. Amazingly, the LAN cables needed to connect every seat in the aircraft weigh 150lbs less than all the wireless antennae, access points and thickened ceiling panels required to accommodate a wireless network."
Moon

Submission + - British Moon Mission

syguy writes: "Never ones to give up easily after their failed Mars mission, British scientists are hoping to try again with a series of robotic missions to the dark side of the moon by 2010. Pink Floyd's album Dark Side of the Moon was also themed on exploration, though of the human condition, but I digress. One mission — MoonRaker — will look for possible moon base sites. Who could resist naming a space mission after a Bond movie? Let's hope the spacecraft is more durable than the one in the movie. They are probably saving the other obvious TV show reference — Moonbase Alpha from Space 1999 — for the base itself."
Announcements

Submission + - Nanotechnology podcast from the Exploratorium

doctorsteph writes: "The Exploratorium has just released a new monthly podcast — a nanotechnology variety show called SmallTalk. In each episode, a scientist tells us about their cutting edge research in nanotechnology. Our essayist for the month gets on a soapbox and tells us what they think about the issues surrounding nanotechnology — our hopes for nanotechnology, concerns about regulation and toxicity, and public misperceptions. We cover solar energy, atomic imaging, nanomedicine, consumer products, and more. SmallTalk is released monthly. Subscribe via iTunes or visit our website at http://www.nisenet.org/podcasts . The Exploratorium is a nonprofit museum of science, art, and human perception in San Francisco."
Communications

Submission + - Mobile Leaders Launch LiMo Foundation

studios writes: Motorola, NEC, NTT DoCoMo, Panasonic Mobile Communications, Samsung Electronics, and Vodafone established the LiMo Foundation to develop the Foundation Platform, a Linux-based, open mobile communication device software platform. A world-class Linux-based platform aims to provide key benefits for the mobile industry including lower development costs, increased flexibility, and a richer mobile ecosystem — all of which contribute to the group's ultimate objective of creating compelling, differentiated and enhanced consumer experiences.

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