Cato Institute Policy Analysis No. 283:10 Myths About Financial Derivatives
September 11, 1997
Thomas F. Siems
Thomas F. Siems is a senior economist and policy adviser at the Federal Reserve Bank of Dallas. The views expressedhere are those of the author and do not necessarily reflect the position of the Federal Reserve Bank of Dallas or theFederal Reserve System.
Executive Summary
In our fast-changing financial services industry, coercive regulations intended to restrict banks' activities will beunable to keep up with financial innovation. As the lines of demarcation between various types of financial serviceproviders continues to blur, the bureaucratic leviathan responsible for reforming banking regulation must face the factthat …ver más…

Myth Number 1: Derivatives Are New, Complex, High-Tech Financial Products Created by Wall Street's RocketScientists
Financial derivatives are not new; they have been around for years. A description of the first known options contractcan be found in Aristotle's writings. He tells the story of Thales, a poor philosopher from Miletus who developed a"financial device, which involves a principle of universal application."
[2] People reproved Thales, saying that his lackof wealth was proof that philosophy was a useless occupation and of no practical value. But Thales knew what he wasdoing and made plans to prove to others his wisdom and intellect.
Thales had great skill in forecasting and predicted that the olive harvest would be exceptionally good the next autumn.Confident in his prediction, he made agreements with area olive-press owners to deposit what little money he had withthem to guarantee him exclusive use of their olive presses when the harvest was ready. Thales successfully negotiatedlow prices because the harvest was in the future and no one knew whether the harvest would be plentiful or patheticand because the olive-press owners were willing to hedge against the possibility of a poor yield.
Aristotle's story about