Dinosaur Derivatives and Other Trades

4 What is a Financial Instrument?A Legal Fiction

“There may always be another reality

to make fiction of the truth we think we've arrived at.”

—A Yard of Sun, Christopher Fry (1907–2005)

I am now going to tell you what is, by a long shot, the strangest story in this whole book. It is very brief.

I once journeyed to a far-off land to meet two ancient men in an antique bazaar. One man was tall, and the other short. The tall man took possession of a donkey from the short man for 50 gold pieces. One year later, the short man took possession of the donkey from the tall man in exchange for 60 gold pieces.

That's the story.

Finished. A story of two men trading donkeys. That's it—nothing more. It doesn't seem strange, not strange at all. It appears to be one of the most straightforward, even dull, stories in this book.

But I suppose the core of my ideas is to show the curious (sometimes hidden) puzzles that lie beneath many commercial activities. And in fact, this story is “donkey deep” in strangeness—but it requires a little thought. Or rather it requires a little peeling, for when you do that, the story evaporates entirely.

First and foremost, is this really a story of a trade? It turns ...