The Flavour of Derivatives

It is said that the Dali Lama only eats food prepared by an extremely spiritually advanced monk. Does this sound strange? In the West, we live in a culture that prioritizes the material over all else. Even the Divine is portrayed as an adult Santa Claus, bestowing material gifts upon the righteous. If Dali Lama were a Westerner, his food service would be called “catering” and be provided by the wealthiest of the available chefs. Rather, the Dali Lama comes from a culture where the most spiritually advanced person in household (who is usually not the wealthiest) should do the cooking. The idea is, that if the most spiritually advanced person in the household does the cooking, this person can raise the vibrations of the food, allowing higher vibrations enter and nourish the family.

Another old culture, based on a different esoteric value, brought the ancient concept of vibrations of food into modern parlance. Japan, centred on Samurai honour, has produced the most-cited research on the vibrations of water. In the 1990s, Dr. Masaru Emoto exposed water to a series of emotions, which showed changes in the crystalline structure of water, based on what we call vibrations of emotions. Photographs of the water crystals were published in a best-selling book, Messages From Water.

There has been resistance by materialists to the idea, denouncing the concept with “scare quotes”, (as happens when one cannot refute the idea itself!), however, subsequent experiments by others have confirmed what Dr. Emoto first saw. Furthermore, Western biologists have adapted the idea of water as malleable, and are now discussing a fourth phase of water — gels (similar to Jello) — as critical to life. Which brings Western science back, almost to the beginning, with the Dali Lama’s food seasoned by the best of spiritual vibrations!

Please remember the idea of water having a memory, responding in kind to beauty, or foulness, and holding that in its structure until the next influence comes along, as this is directly applicable to the next conversation, about money! Let us re-word the ideas about water in a different way: that water is dialoging with us, the “language” of water being the positioning of its chemical bonds. Further, that the chemical bonds in our bodies recognize the language of water, even if our conscious minds have not. Yes? Let’s extend this: if water speaks through “body language”, then what has mankind’s invention, money, (the invention most closely compared to water), been saying to everything it comes into contact with?

First, let’s define money. To do so, picture a glass of water. Ninety-seven percent of the glass is water from the ocean, and three percent is fresh water. We agree that this glass of water is essentially from the ocean? The three percent fresh water is not enough to impact the salty sea taste of the glass? Alright — doing the same for money — about ninety-seven percent of the money in existence is derivatives; the remaining three percent is the money you and I see, in our pockets, our bank accounts, our charge cards, and our salaries. The two kinds of money are not separate; the derivative money mixes in with the rest, and our salaries, pensions and savings slop right back into derivatives. This means that almost any time we hear someone speaking about money, they are referencing “fresh water” ideas, when actually, in our world today, there is no “fresh water money”, it is all salty.

Is this a photo of lentils and buckwheat, or candied ginger? Most would say the amount of lentils and buckwheat defines this bowl!

So, what is the molecular structure, the body language of derivatives, as compared to the money we are most familiar with? Masaru Emoto felt that the most beautiful crystals were formed from the emotions love, and gratitude. Love and gratitude are probably not the dominant emotions in our derivatives system! Raw Tibicos believes that we are intelligent enough to create a hypothesis about what “conversations” and influences our money is having on our businesses, so let’s see what we can do!

Our discussion, below, is about a single chef, in a single restaurant; this is for ease of discussion. We understand that, actually, these maneuvers are achieved by chain restaurants — which then impact smaller businesses — as we shall see.

Imagine a chef/ owner, of a popular restaurant, named Daddy Fastbucks. Fastbucks’ banker scared him about the cost of beef; the cost can vary by season, and so he proposed using the derivatives market to make the cost of beef more predictable. Our chef entered into an agreement with large banks; sell me beef in one month, at today’s price, and I will pay you 20% of the cost of the beef extra, now, plus 2% next month, if you keep the price of the beef next month the same for me.

The bank then off-loaded this risk, by pre-buying beef at a set price, which was quite easy to do. As we know, farm-support subsidies and purchase agreements even out costs, and Daddy Fastbucks could have done what many other chefs have done, at a lower cost, which is contract with a local farmer. On top of this all, ceteris paribus, inertia stops most price movements.

If readers have the impression that “swaps” such as this are frequently costly and usually unnecessary, then Raw Tibicos has explained it well! In addition, many items are not profitable to treat in this way. In fact, for beef to be treated in this way, we must ignore differences in quality from one farmer to another, and one region with another! Due to these essential limits on the “legitimate” uses of options and swaps, the world has come up with a use for them which appears legitimate, but ends up, really, being a way for taxpayers to participate in this game.

The first step was to come up with a name for the whole bag of options, swaps, futures, and so on, which would sound like market participants were doing something similar to paying an ATM service charge. The new market was called “derivatives”, which was a brilliant choice, reminding those of us who took high school calculus, of days dreaming of things one would rather be doing; and probably reminding those who did not take calculus, of the unpleasant reaction when asking, “How goes Calc?”

Daddy Fastbucks liked hanging out with bankers more than local farmers, and he liked seeing large amounts of money slosh back and forth in and out of his account. First, he hedged one month’s beef bill. Next month, he hedged beef, again, for more. After a small gain, he doubled, trebled, quadrupled his bets, hedging far in excess of what the actual bills were. Some months he gained, some he lost, and before long, his options were either costing — or paying — him as much as the diners in his restaurant. Little cards appeared on each dinner table, inviting patrons to pay for next week’s meal, today, to provide funds for more derivatives trading. It is the money equivalent of keeping live chicks in the kitchen, while thinking that a wet blanket tossed on top of them is anything but a temporary solution to keeping them contained.

It’s all good clean fun, as long as the chicks stay under the wet blanket. Inevitably, hungry and mad, the chicks find their way out, and run amuck in the kitchen, squeaking, tripping staff, defecating on the food, and refusing the be caught and put back. Those who like to bet on derivatives call this a “Black Swan” event, implying that it is as rare as a black swan supposedly is. We who are taxpayers notice that these events happen as frequently as chicks finding the edge of a blanket! Such is the eternal truth that what we see, depends on where we and our wallets stand. However, believe it or not, the chief problem here is not the frequency of these “break through cases”, but the magnitude. Just as our one part of fresh water has been defined by the thirty parts of salt water added to it, so the sheer volume of derivatives allows those same chicks to trip staff and defecate on food not only in our chef’s restaurant, but in effect, in all the restaurants in his region.

“Hold on!” some readers may be saying, “I don’t believe in magic, let’s have a better explanation of how derivatives allow those fowl to foul up other restaurants?” An excellent question, which deserves the best answer Raw Tibicos can give! There are two ways — the material way, and the spiritual way.

To start with the familiar, material consequences, let’s peep into the kitchen of our enterprising-making chef Daddy Fastbucks. When we last looked, he was hedging the future cost of beef. “Hedging” involves making a bet that in a month’s time, the price of beef will be either higher, or lower, than it is now. At first, confident in his ability, our chef placed bets, one or the other, higher or lower. As we all do, he soon learned that life is more complicated, and so he thought to himself, “Why should I not bet on both eventualities, up and down? He doubled his bets, buying two options at the same time, one for a higher price of beef, and the other for a lower price.

“But wait,” interrupt readers, “why would he hedge for lower beef prices? Those only benefit him, as a buyer of beef?”

The answer to this lies in the concept of monetization, which gets presented as something desirable, but which actually means that the expected profits for betting on an activity are greater than the money to be made by doing it. We are familiar with this with horses, where raising and training horses is generally a loss-making activity, but betting on horse races is wildly profitable for those who hold the books. Thus we come to the first cost that other restaurants experience: now that our chef has monetized his food service, his main income is from betting on price movements. However, he needs the underlying asset; his restaurant, in order to have something to bet on. Exactly as betting on horse racing, requires the loss-making business of raising horses!

This means that Daddy Fastbuck’s fellow chefs are competing with a subsidized rival. In the long run, Daddy Fastbuck’s customers will leave him, tired of old, dirty furniture, out-dated menus, and shoddy chefmanship. Unfortunately for his rivals, we are living in the present, and customers are noticing that our chef has much lower prices, while the problems are not yet apparent. This leads to a further problem for everyone else. Established chefs are losing custom to the options-subsidized house, while new chefs, looking at the market, are quick to learn that the road to success is to sell cheap food, subsidized by options trading. What had been one problematic competitor now multiplies into a tsunami. Daddy Fastbucks has used the energy of money to change the restaurant market, without the consent of others involved. In fact, other established chefs, in their kitchens minding their own foods, may not even realize what has changed; only that things “aren’t right”.

Meanwhile, in the original kitchen, Daddy Fastbucks has had a series of months with no price movements, which means that both of his bets — the one betting that prices rise, and the other side, that prices would fall — both lost money. Always enterprising, he discovers that he can cause market prices for beef to rise or fall, by issuing wash trades; which means that our chef is both the buyer and the seller on the same bet. For him, the trades cancel each other, but they have the effect of sending a false signal to other buyers and sellers, especially computerized ones. To raise prices, he does a wash sale at a slightly higher price than the current market. To lower prices, he does a wash trade at a slightly lower price than the market, and repeats until he has the result he needs.

Meanwhile, remember the copycat restaurants, who also monetized? Quick learners, all of them, they are now betting high, betting low, and using wash trades to make the bets into certs. Our food-centred chefs, who had been facing the problem of subsidized competitors, now face a new problem. The very concept of money, on which they rely, has become corrupted. For money to be useful it must be a reliable measure of value, (usually labour value), and it must also serve those who save as a store of value. In a world where the derivatives market is estimated at $1.2+ quadrillion 1 — about thirty times the income of the whole world — there is no question that the world menu is being set by speculators, not diners or chefs. All of mankind’s combined income is not even the tip we leave at a restaurant, compared to the derivatives cheque.

To put this into perspective, imagine a household of four, mother, father and two adorable children, where one of the parents is an alcoholic. In this household, fifteen dollars go to buy hooch, and one dollar, total, is spent on housing, shoes, food, utilities, and fun. We can imagine that the only salesman making house calls to this home is the liquor merchant. Further, after a few decades of this spending, when the police or doctor are called in, who has been paying for the new cop car, the doctor’s stethoscope, the annual holiday dinners, the new stadium? Modern life requires us to pay attention to the source of our money! Is not every solution, to all issues, a shot of the hair of the dog that bit us? This is why so few people have heard about the derivatives side of money; for all who are “in the know”, there is simply too much money there, to risk talking about it!

Remember all those cards on the table, for the diners? The pre-paid meals all went into the derivatives market, and the diners who pre-paid meals may or may not ever get what they paid for. In the world of derivatives, the actual meals are not as important as the process of setting up the pre-pay, putting the pre-paid money into the derivatives market, accounting for it, agonizing over the diner who wants a refund, re-speculating with the money diners left in the market, looking for more sources of money to bet with, and finally, looking for new physical things, like beef, that can be treated in the same way, and so on. Each of those activities — called monetization — takes effort away from training new waiters and chefs, replacing worn-out chairs and tables, checking the quality of the ingredients, and so forth. If only one chef does it, it’s a personal mistake. When all the chefs participate, it’s a slow-moving economic disaster. Monetization doesn’t translate into knowledge of how to grow, store and prepare excellent food, and once that knowledge is gone, money cannot buy back that which no longer exists.

Monetization, therefore causes a decline in the knowledge base of civilization, not only by rewarding Lady Luck over Knowledge, but also by setting up a hunger that can never be satiated. When we eat a fine meal, receive and give a hug from a friend, sip coffee while we enjoy a fine view, these are finite pleasures. Everyone reading this is incorporate, living in a body, present here at this minute, which means that we are bounded by the material world. We can understand the concept of “goodness”, but to really feel it, to be filled by goodness, we must experience the kindness of a particular person, at one time and place. Here lies the danger for mankind in non-tangible financial instruments. We buy one swap, we buy a million options, and it is never enough, it is no different than a restaurant where one enters hungry and is never allowed to do more than sniff the aroma of food. This is why our monetized money is thirty parts salt water; generations of traders and CFOs chasing mirages, and never finding satiation. Only when we pull the money out of the derivatives market and use it to purchase goods in the material world, does it become satisfying — but at that point, by definition, it is no longer in the derivatives market.

We have discussed the impact of money on the physical world, which is to say, that much as house plants die when fed salt water, the wrong kind of financial system, alone, can kill prosperous businesses. As with water, there is also a spiritual component to our choice of financial system. People are not used to thinking about how systems of finance can dictate moral values; however, as we grow and mature as a civilization, there is no reason not to!

Previously, we mentioned the new chefs entering the market have been psychologically changed by the flow of money into derivatives. Looking a little closer, we see that there is more going on than simply changed business plans. Speculation is attractive, as it needs no knowledge base, just a willingness to play. In most speculation games, any sub-normal person can speculate, especially when risks are borne by taxpayer. The speculator looks like a genius during an up market, and a victim when things turn down, but in this system, never appears in his real identity as a gambling addict who impacts the world around him as surely as any other addict.

When over ninety percent of all the world’s money is drawn out of the productive economy, into what can only be called speculative gambling, it creates mis-aligned values. Some months Daddy Fastbucks, and all his imitators, has far more cash than anyone else, and lavishes it on whatever strikes his eye first; other months he cannot pay his bills. Meanwhile, his kitchen staff are working at low wages to create meals that delight both the eye and the tongue. This is the reason for uncomfortable situation of both inflation and deflation at the same time, which we have all experienced, without knowing the reason why. More than that, it creates a mismatch between the qualities we need in order to live in harmony with each other — trustworthiness, responsibility, hard work, honesty, willingness to help — and what is rewarded. On the one hand, Daddy Fastbucks has no financial incentive to benefit his employees, customers and community, as his income is divorced from all those. On the other hand, his competitors, restaurants who make great food at a reasonable prices, are punished. It is said that goodness is its own reward, but how confident do we feel about the continued kindness of our neighbours and family, in a system where, by design, only those who gamble, and are lucky, are rewarded? Even worse, once the spiritual value of bottomless hunger is engraved into our financial system, how do we blame our politicians for subsidizing, supporting, and bailing-out ninety-seven percent of the monetary system, when it springs a leak? No politician, running in an honest election, ever won by that margin, so can we blame them for continuing a system which has such an overwhelming dollar vote?

Discussions about problems and solutions tend to blame farmers, consumers, food processors, when in reality, the source of discomfort may be our particular energy of money. The philosophy of materialism has degraded mankind to the status of a lump of clay, but thanks to the thoughts of curious souls, we have a wider menu to chose from. Raw Tibicos would like to know; what happens in people’s lives, when we express love and gratitude to anything containing water, before we consume it? If nothing happens, we are no worse off than we were before. If we feel better, than what fascinating vistas open before us? For suddenly, we have moved from lumps of clay, into important souls, who can change the world through expressing love and gratitude. Perhaps, if we are powerful enough to change the crystalline structure of water, are we not also strong enough to change the energy of our own creation, money, into a form that honours human values?

Love and gratitude, horse style!

1 Derivatives are estimated at thirty times all the other money in the world, as mentioned earlier, but only fifteen times world income. The difference is the velocity of money: let’s say Daddy Fastbucks made $250,000 gross from his restaurant last year, but $200,000 of that was paid to suppliers, staff, who then paid it for their own rent, utilities, etc. This means that the same dollars show up in many accounts during the course of a year; this is called velocity.