They Can't All Be Crooks......Can they?

I found the same definition of "petard" that you did, but I thought that couldn't be it, so I kept looking and was unable to find anything else. Funny how we think we know something for years and years and then come to find out that it ain't so. That's why I seldom claim to know something for absolute certain anymore.

I became interested in commodities futures a few years ago when I heard that you can do it on the internet now. I eventually decided it was not for me, but I learned some interesting things along the way, mostly from Wiki. What surprised me was that nobody ever gets to see the actual commodity or hold it in their hand. In theory, the person who holds the contract at the time it comes due has to "take delivery", but that almost never happens. Even if the contract holder is somebody like a grain elevator company that could actually use the wheat, they sell their contract and use the money to buy real wheat. I think the contracts all end up being reabsorbed into the exchange that brokered them in the first place. I'm not sure what they do with them, but I'm pretty sure that they never get to see the wheat either. Before the contract expires, the traders keep tossing it back and forth between each other like a hot potato, and nobody wants to be the one holding it at the end.

Another thing I learned is that you only need to put up about 10% of the face value of the contract to buy it, the rest of the value is carried on the books as a debt that you owe to the exchange. The debt is paid out of the proceeds when you sell the contract. I don't know what happens if the price really tanks and you can't sell it for anything close to what you owe on it. Maybe they make you jump out of a window or something.

Another thing I learned was that the current price of an active contract usually stays pretty close to what people are currently paying for the real commodity on the "spot market". If it drifts too far away from that, there are people called "arbitrageurs" who step in and buy up enough of the commodity or the contracts to shock the prices back into what they consider the normal range. These guys don't work for the government or anything like that, I think they just do it out of the goodness of their hearts. Well, maybe not, maybe they have such a big stake in the market themselves that they can't afford to let it go haywire, and they can afford to do whatever it takes to make sure that doesn't happen.

While I'm sure there are crooks on Wall Street, just as there are crooks an every other street in the land, I don't think that they're all crooks. It might look like that to the average civilian because we don't understand all the ins and outs of the system. The fact that a big scandal is generated when one of them gets caught with his hand in the cookie jar tells me that it's not the sort of thing that happens every day.