Bankers admit diamond lending risks are too high
- 5.7
- July 5, 2007
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Antwerp Facets newswire builds on the arguments I have outlined before in their post on on the advent of diamond derivatives.
Apparently Bankers are delighted that speculators will bear a stock-financing burden that has become too risky for them.
But I have other concerns too….
Introducing a futures market to enable speculation on something that has no material worth is a very dangerous game.
It is not just speculators who can lose out.
A spate of short selling on the futures market can have real world impact - not just on swanky jewellery firms and wealthy mining companies, but on the economies which rely on diamonds. Whereas Soros’s speculation against the pound merely hammered the UK economy, diamond speculators could impact fragile producer economies like Namibia.
Futures traders don’t care about the underlying value of assets; just in guessing right on market direction.
Any futures market based on a limited range is unlikely to be strong enough or liquid enough to avoid massive distortions.
We are living in dangerous times. The insurance companies must be rubbing their hands.