Ok so how on earth does the fact that derivatives permitted the tulip Bubble is an argument in favor of derivatives?

It might a question of point of view. Maybe you focus more on tulip frenzy financial opportunities while I focus more on people that have been burned by it...

And yeah if you want to trace it back to 1500 no problem with that, old does not always equal good. It like copyright laws written prior to widespread of computers. Is it right to let them unchanged because they are old while humankind could technically share knowledge and arts at a scale never envisioned just 10 years ago?

> Ok so how on earth does the fact that derivatives permitted the tulip Bubble is an argument in favor of derivatives?

It's not, not was I making an argument in favour of derivatives. (I'm generally in favour of them; I just wasn't making that argument.)

Rather, I was responding to your argument, which I would paraphrase (I hope not unfairly) as "I hate these new inventions, we should go back to before they existed, when markets worked properly!" by which I suspect you meant the 1950s, but really it's the 1550s. :) (And given how different markets were back then, I'd even go further and say there has never been a time when markets worked the way you imagine. I'm not even sure they could.)

In short, if you don't understand the history of financial markets, your conclusions based on your flawed understanding of that history will have greatly diminished value.

> old does not always equal good

Quite right. But it's very different to say "the last 500 years have been a mistake" versus "the last 50 years" or (especially) "the last 5 years". For one thing, it's a lot harder to imagine the counterfactual.

I can guess what the world would be like if the Gramm–Leach–Bliley Act had never passed (probably very similar to the current day, but again, that's a separate argument); I can't imagine what the world would be like without derivatives, because they have been a part of the past 500 years of development of our economy, laws, and culture. A change of that magnitude requires extraordinary justification.

I suspect it is even older than 1550s. I'm a farmer with land who needs seed. Another farmer is willing to front me seed in exchange for grain in the fall. That is a contract.

His point was it isn't a technological improvement, it's something that's existed for hundreds of years, he didn't claim they were good.

Simple derivatives like calls and puts are unbannable.

Observe that I can replicate the payoff of a call option by borrowing money to buy the stock [1] or replicate a put by shorting a stock and lending money.

[1] http://people.stern.nyu.edu/adamodar/pdfiles/eqnotes/optionb...

But it's way more risky cause you could end up loosing more than the price of the option.

Thus people would be more careful which is an improvement in my point of view.

Re-establishing the uptick rule would be a middle ground between banning totally and current speculative frenzy.

No, you can replicate the option exactly if you keep re-weighting the debt and stock ownership.

Granted, this is only really feasible for large institutional investors, but you can do it.