Wed Oct 8th, 2008 at 12:05:51 PM EST
This may be a very naive or stupid question, but I would like to know the answer.
I always understood that it was illegal for someone (a person, a corporation) to repay commercial paper ("traites"?) with more commercial paper.
It was a offense dubbed "cavalerie" in France because the penal code considered it akin to creating new, and therefore counterfeit, money.
Only sovereign nations can create money, I suppose.
Why, therefore, is the entire derivatives industry legal?
According to this graph on Wikipedia, the total value of all the derivatives is in excess of $500 trillion, while the entire world wealth may be perhaps only half of that.
Wasn't that creating counterfeit money, in effect?
So why was it legal?