Why we need speculators

Permabear

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sceptre

donegalfella wrote: »

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Is it too early in the discussion to draw an analogy with black hat hackers? I could come back later.

Banned Account

Have to disagree with you on this one. The reasons for dysfunction in the market are manyfold. The fact that quarterly announcements place a value on short term profits, the fact that those who execute transactions and investments are insulated from financial effects of them going awry, the fact that problems arising in the markets now effect people who were not a perty to the transactions in question - these are structural issues which will only be rectified with regulation.


What speculators are doing is operating in de-regulated areas and taking advantage of the de-regulation of the markets ushered in under the Reagan and Thatcher regimes.

anymore

Please donegalfella, if you keep making statements like this, Brian Cowen & Ahern are going to run out of excuses for destroying more of irish Wealth than another group of Irish people ever !
Irish self esteem depends on the mythology of the ' Market forces have destroyed us ' ! :eek:

karma_

Greed is good...

Now where have I heard that before.. :rolleyes:

kmick

Speculators seize on arbitrage opportunities the way crows seize on garbage. It is akin to blaming crows for generating the garbage.

Anyway it helps exports if the euro falls so let it fall.

Permabear

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peasant

Would you please elaborate on how "naked short selling" (which has now been banned by Germany) is a good thing (for the market, the economy as a whole and the "keeping honest" of governements in particular)?

Naked short selling, or naked shorting, is the practice of short-selling a financial instrument without first borrowing the security or ensuring that the security can be borrowed, as is conventionally done in a short sale. When the seller does not obtain the shares within the required time frame, the result is known as a "fail to deliver". The transaction generally remains open until the shares are acquired by the seller, or the seller's broker, allowing the trade to be settled.[1] Naked short selling can be used to fraudulently manipulate the price of securities by driving their price down, and its use in this way is illegal.[2] However, the practice is considered benign under certain circumstances, such as trading by market makers.[3]

http://en.wikipedia.org/wiki/Naked_short_selling

Conventional wisdom would hold that selling things that you don't own and can't potentially present at the time of sale either is somewhat "iffy", to say the least.

Laminations

donegalfella wrote: »

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Really? But I thought you were a libertarian? Whatever the cause of the holes in a sinking ship, it's not wise to allow people (not onboard or reliant on said ship) to push elephants through those holes simply fir their own enrichment..

Permabear

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Banned Account

donegalfella wrote: »

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The net effect is the same - poor regulation/non-regulation - the issue is with the regulation in either case. If you look at the regulatory regimes enforced after the Great depression and strengthened after WW2, whilst enforced, they did a good job, the wheels came off after the measures were rolled back under pressure from lobbyists.

Laminations

Highlighting weaknesses in a system is one thing but exploiting those weaknesses which then in turn exacerbates the problems should not form part of a 'solution' to the weaknesses. It's like punching a kid in the face to demonstrate he can't defend himself. And you are trying to say speculators are doing this for our benefit?

Permabear

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ei.sdraob

i wrote about this in parallel thread about a retarded move by the EU

ei.sdraob wrote: »

You do realise that you can still naked short sell outside the institutions where it was banned?

its like banning gambling in states

you endup with money leaving the system to places that do allow it

in case you havent noticed this is already having a bigger negative impact on the euro than the Greek crisis (and two of them being so close to each other doesnt help matters)

gambling/speculating/whatever doesnt affect the economy until the state moves in to socialise the risks of these people/institutions, which im quite against as you know by now

this move is futile and all it accomplished is further weaken the euro and confidence in the eurozone

Permabear

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Banned Account

donegalfella wrote: »

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OR you could just enforce the regulations thus preventing a rather perverse situation whereby those with the capability of creating whispers can manipulate the markets to their own end. My problem with your suggestion is it seems to be very closely aligned to the idea that two wrongs can make a right. History tells us differently.

Speculators and de-ragulated markets operated freely in the run up to the Great Depression.

ei.sdraob

Fitzcaraldo wrote: »

OR you could just enforce the regulations thus preventing a rather perverse situation whereby those with the capability of creating whispers can manipulate the markets to their own end. My problem with your suggestion is it seems to be very closely aligned to the idea that two wrongs can make a right. History tells us differently.

Speculators and de-ragulated markets operated freely in the run up to the Great Depression.

Yes close regulation has worked wonders for the USSR

Macha

donegalfella wrote: »

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What about the crazy dip in the markets last week? What about the influence of less-than-credible rating agencies? The market is extremely vulnerable to manipulation and to describe it as intuitively "steering prices to their correct levels" completely ignores this fact.

Permabear

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ei.sdraob

taconnol wrote: »

What about the crazy dip in the markets last week? What about the influence of less-than-credible rating agencies? The market is extremely vulnerable to manipulation and to describe it as intuitively "steering prices to their correct levels" completely ignores this fact.

so you (well the EU actually) propose replacing manipulation by private companies with manipulation by state company/agency

yes that would work out great in end :rolleyes:

btw I wouldnt call what the credit companies did manipulation, they are too incompetent for that as have been shown by history

Permabear

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Banned Account

ei.sdraob wrote: »

Yes close regulation has worked wonders for the USSR

Kind of braod statement here - to what and when are you actually referring - the USSR is no more?

Cheers

ei.sdraob

Fitzcaraldo wrote: »

Kind of braod statement here - to what and when are you actually referring - the USSR is no more?

Cheers

I wonder why its no more :rolleyes:

take the example of Germany (so much loved by pro-regulation crowd)

postwar you have a closely regulated and controlled east vs liberal west (it was more economically liberal than even the US at times)

which one came out better in the end?

donegalfella

donegalfella wrote: »

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Id have thought you'd be against that sort of thing..
(providing a social service..)

Macha

donegalfella wrote: »

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Why do you resort to totally exaggerating what I wrote? That is not what I said.

donegalfella wrote: »

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I didn't say that we shouldn't have a market? I said that markets are more open to manipulation that you seem willing to admit and I don't see any justification for governments not stepping in to limit the sort of activities that are not the result of simple market forces but genuine attempts to manipulate the market.

The problem with debating with market fundamentalists is that everything is explained away by the logic that "the market knows best". So the ECB & IMF pledge €120bn to save Greece from defaulting on its debt and then Moody's moves to downgrade Greece's debt, something that makes absolutely no sense, yet I'm sure this will somehow be explained away.

Banned Account

ei.sdraob wrote: »

I wonder why its no more :rolleyes:

take the example of Germany (so much loved by pro-regulation crowd)

postwar you have a closely regulated and controlled east vs liberal west (it was more economically liberal than even the US at times)

which one came out better in the end?

Ok, so the USSR broke up because of a heavily regulated financial market system

But now, you have changed your mind and want to discuss Germany instead?

Have you any idea as to what type of financial market regulations were in place in West Germany or the USSR or are you confusing my points with general state control?

Valmont

Fitzcaraldo wrote: »

Speculators and de-ragulated markets operated freely in the run up to the Great Depression.

Really? What was the Sherman act then? The federal reserve act in 1913? I'm tired of this "evil market deregulation" stuff being constantly thrown about. It doesn't take a degree in economics to look even slightly deeper.

Permabear

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Liam Byrne

I can't disagree more with the OP's post.

If all of the necessities were traded on the basis of need, then the world would be a better place.

Having dollars or oil - or even property - more expensive just because someone with sufficient funds stockpiled it in order to make a quick buck - contributing nothing - is sickening.

Everything the OP posted is ignoring the negative effects of the speculation itself.

Banned Account

Valmont wrote: »

Really? What was the Sherman act then? The federal reserve act in 1913? I'm tired of this "evil market deregulation" stuff being constantly thrown about. It doesn't take a degree in economics to look even slightly deeper.

The former was merely an anti-trust law, the latter dealt with ensuring that banks held reserves - it wasn't strongly enhanced or ammended until the 1930's.

Madd Finn

donegalfella wrote: »

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Spot the rational objectivist. Somebody who doesn't believe in God but insists that we all believe in the "hidden hand" of the market.

Never mind all that spooky spiritual business; here's an intangible reality that you should all worship. :eek:

Penury good, decency bad.
Selfishness is holy, generosity is immoral.
Individual good, society bad.

God bless--well not God obviously but you know what I mean--Milton Friedman, Damn JM Keynes to hell.

If there is one. :rolleyes:

OhNoYouDidn't

donegalfella wrote: »

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But their 'own advantage' is the greater good of their populations. Speculators serve no purpose other than gouging money for themselves.

The idea of financial markets is to provide liquidity. Not to be a forum for automated systems to attack timing fluctuations or people to target economies and run them. Having stability is more of a public policy goal than some quasi intellectual endevour of finding the right price - which is what the last person was willing to pay, no more no less.

The net result of the erratic nature of speculators is to create economic crisis and uncertainty. This is not a good thing and was never envisaged when the 'free market' was being established.

Permabear

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Liam Byrne

donegalfella wrote: »

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I don't care what it sounds like.

What I meant was if you're going to use it, you can buy it.
If you're going to add something to it, you can buy it to sell it.

If you're not going to, then hands off; you're just making life more expensive for everyone else.

donegalfella wrote: »

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Not to mention part of the problem, since it makes everything more expensive for everyone else.

donegalfella wrote: »

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Good for you. Now can all of us that had to contribute to the €1.3 billion have some of that "quick buck" ? :mad:

donegalfella wrote: »

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Then by all means "discover" that and charge a small fee to the governments involved, on a more open and transparent basis.

If your back door is open, then I'm not "breaking and entering", so would you thank me for "highlighting the security issue", or would you beat the crap out of me for trespassing ?

donegalfella wrote: »

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Bull****.

There's no political spin involved in - for example - my needing dollars if I'm going abroad, or my needing petrol for my car.

donegalfella wrote: »

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OK, so if I bought all the food and oil available, making you and your daughter go hungry and cold unless you paid an extortionate price, you'd be perfect happy with that ?

All the above sounds more like blackmail and extortion than "free market" to me.

People should be paid for what they contribute to society, not what they can extort from others.

Permabear

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Liam Byrne

donegalfella wrote: »

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They serve themselves - no-one else.

donegalfella wrote: »

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I agree. As long - as I said - it is genuine demand, and not an artificial shortfall because of speculators.

You're completely ignoring the fact that speculators' actions impact the market; they're not running a virtual reality simulation.

donegalfella wrote: »

Wrong. Speculators do not create crisis and uncertainty; they merely expose it and profit from it.

Really ? So we're all "certain" of when these speculators will choose to strike, so ? And can plan for it ?

And let's say an airplane fuel cap is unlocked, but staying in place........if a speculator opens it and says "look, this is unlocked, the fuel will come out now" then the crisis has been caused by the speculator.

anymore

Liam Byrne wrote: »

I can't disagree more with the OP's post.

If all of the necessities were traded on the basis of need, then the world would be a better place.

Having dollars or oil - or even property - more expensive just because someone with sufficient funds stockpiled it in order to make a quick buck - contributing nothing - is sickening.

Everything the OP posted is ignoring the negative effects of the speculation itself.

I(f we want to see what happens when a country seeks to trade on the basis of necessity, we only need to look at ireland between the 20's and end of the fifties !
Lets be realistic, Irleand itself is playing a specualtaors game; we undercut the industrious european countries like germany w.ith a very low corproation tax - despite that it is these contiries who have subsidised our infrastructural development and our agricultural industry, we used cheap german money to fund our speculative activities and then when these turn sour we then use more german money to bail us out and start sqawlking about our sovereignity when the EU suggests we might need to submit budgetary plans for review !!
If I was german, I know what the sickening part is !

Permabear

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Liam Byrne

anymore wrote: »

Lets be realistic, Irleand itself is playing a specualtaors game; we undercut the industrious european countries like germany with a very low corproation tax.....

If that low corporation tax were sustainable, then I'd disagree, because you're then talking solely about a cost base, which is a separate issue.

As to whether it is sustainable, and not just a gamble; on that basis you have a valid point.

Liam Byrne

donegalfella wrote: »

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Sorry, that's self-justifying bull. If you wanted to provide "information", then you could write a report and get paid for it.

Therefore, you are not contributing "information" to society. Fact.

Yet again, you're ignoring the fact that you're not "providing this information" :rolleyes: and you're adding to the distortion......the equivalent of getting a wolf to analyse how sheep behave in their "natural" environment.

donegalfella wrote: »

Of course, I contribute other stuff to society, too. Including spending many hours a week tutoring local kids in maths, and doing what our overpaid and underqualified maths teachers are paid to do but don't.

Irrelevant. Lots of non-parasitic service providers and actual contributors do similar good deeds.

OhNoYouDidn't

donegalfella wrote: »

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Yet you convieniently ignore the distortions in the housing market caused by specualtors...

donegalfella wrote: »

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And fundamentally the question is that bottom feeding a good thing.

donegalfella wrote: »

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On paper, maybe you have a point. But over 100 years into the capitalist experiment it has yet to work without reaping havock on the real economy.

donegalfella wrote: »

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Specualtors do create crisis and openly admit to it.

I repeat, the object of the market is to create liquidity so companies and countries can create wealth. Not for parasites who see opportunities to remove liquidity from the market.

Permabear

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OhNoYouDidn't

donegalfella wrote: »

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It actually is.

As has been said before, if their service is informational, why don't they share this information as opposed to taking advantage for themselves?

OhNoYouDidn't

donegalfella wrote: »

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Even though people die?

The public service is to tell the captain and get him to take corrective action, not open the lid.

Permabear

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Permabear

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Banned Account

There is a need for regulation. Markets on their own fail, and fail very frequently whilst there are many reasons for this (as posted earlier) two of the main reasons are Agency and Externalities (see Stiglitz for this)

The former is a modern problem - in modern corporations there is a seperation of ownership and control - management who own little of the company can often run it for their own benefit. Those who make large scale investment decisions and assess corporate performance do so not on their own behalf but on behalf of those who have trusted funds into their care. This means, that the Agents are concerned primarily with short term performance and ignore long term effect.

Earnings now become dependant, not on long term stability, but on short term market movements so management naturally does what it can to drive up market prices even if this means creative accounting. This short term focus was reinforced by the demands for high quarterly returns from stock market analysts and lead to an institutionally led desire to circumvent accounting and financial regulations.

What it ultimately led to was a lack of any real kind of quality control - under the free market model, the market should ensure that firms that produce excessively risky products would lose their reputation - this wasn't so of late and we saw a number of risky methods which purported to beat the markets - as it transpired, they couldn't.

The way the modern financial markets are structured means that market exchanges imposes costs and benefits on those who are not party to the actual exchange - this can be seen in the fact that the tax payer is now bailing out the banking system.

The real problem with this is that, when there are serious agency problems coupled with externalities, markets fail to produce efficient outcomes - this is why there is a need for financial regulation. One of the main reasons that Banks became too big to fail was the failure to implement (in Europe and other places) and repeal of (in the US) legislation which seperated investment and commercial banks.

Liam Byrne

donegalfella wrote: »

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You want to get paid ? Then do a job.

donegalfella wrote: »

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I don't, because speculators keep on distorting it.

donegalfella wrote: »

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....buying houses and selling them on at a higher price, contributing nothing.

Banned Account

The analogies with houses aren't wholly helpful as speculators also got severly burned by buying houses and being unable to sell them on.

This no longer happens in the financial markets as we have created ingenious ways to profit from things falling in value as well as rising. So now, the greater the distance between peak and trough, the more money you can make.

If you can control enough money or information to create large swings, you can make lots of money a la George Soros. This is the real reason why unbridled speculation represents such a danger - speculators are incentivised to upset a normally functioning market.

karma_

Fitzcaraldo wrote: »

The analogies with houses aren't wholly helpful as speculators also got severly burned by buying houses and being unable to sell them on.

No bad thing. However I'm betting that most of the big hitters got out of the pyramid scheme when they say that the bubble was about to burst.

The way the speculators operated just kept driving prices up, the logical conclusion was surely it had to end in a bust?

So as to the OP contention that this is somehow good for everyone is startling.

Macha

donegalfella wrote: »

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I'd rather the government correct the market on behalf of its citizens rather than leave it up to rating agencies that are probably in the pockets of Wall St and care very little about you or I.

donegalfella wrote: »

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That's exactly what I'm talking about. The EBC/IMF Greek scheme is bad because the markets say so. QED in your book. In fact, the move will guarantee cheap funding for the central bank and analysts have said that the move will also make Green bonds more attractive to investors. But the messages being sent to us by the all-knowing market tell us otherwise and we..must..not question the oracle market.