tag:blogger.com,1999:blog-11719208.post2452801539500951477..comments2023-11-05T04:36:14.223-08:00Comments on The Mess That Greenspan Made: Commodities: A "Cinderalla Story"Timhttp://www.blogger.com/profile/16530974968126497397noreply@blogger.comBlogger1125tag:blogger.com,1999:blog-11719208.post-72259456345473017962009-07-08T08:13:19.616-07:002009-07-08T08:13:19.616-07:00The problem with most commodities is that they dep...The problem with most commodities is that they depend upon futures bases vehicles. That is, the people on the other side of the trade must be willing and able to take horrendous losses to pay off on the futures contracts if prices move a lot. What is the chance that this will happen? They may just declare bankruptcy like Lehman did, and the futures would be virtually worthless.<br /><br />The super contango recently in oil may be a measure of the high risk premium being now charged by the people on the other side of the trade. A limited number of people could rent tankers and store oil, but not enough for oil futures to be covered in general.<br /><br />Futures are not likely to produce historical returns once they become ubiquitous vehicles. Few have enough money to pay off on the bet if the price goes against them. Many of these contracts are just AIG type offering of useless bond insurance. AIG did not have anywhere near enough money to pay off the mortgage bond futures insurance they issued.<br /><br />Who will bail out commodity futures traders who issue contracts they cannot pay off on?Anonymousnoreply@blogger.com