Speculators fulfill a vital signaling function in the market process. Their current signals should induce politicians to radically reduce the government’s burden on society and return to fiscal discipline as quickly as possible. FULL ARTICLE by Malte Tobias Kahler
{ 74 comments }
“Many commentators (the majority of whom are not economists) blame the imminent crisis in the eurozone on malevolent speculators. I find it necessary to take up the cudgels on the traders’ behalf and explain why they are not culpable for the current mess.”
The article’s argument is contorted, and proceeds from a false premise. Looking over activities within the European governments and comments in the European press and the left press, I don’t see anyone saying that on principle, all speculation is bad. Or even that all speculators are bad. Instead they point to the obvious destabilizing effects of tactics like naked short selling, which tend to make an already erratic market come apart at the seams. Recent hedge fund bets on the direction of the Greek economy hastened its crash, and European banks are understandably worried about the amount of risk inherent in a game where everything is permitted. Understandably, they’d like to make the rules a bit more restrictive.
I think we need no great leap of the imagination to understand that in the recent Meltdown of 2007, it was irresponsible activities on the part of our own speculators that exacerbated a bad situation. They are not, to be sure, the chief bad actors. The collapse was precipitated by the largest investment banks, those who over the years have been behind a concerted push for deregulation so they could engage in precisely those activities that brought Wall Street to the brink of disaster.
Those banks created the huge, uncontrolled casino in derivatives. The speculators merely crowded around that market, juggling hundreds of billions in pursuit of their adrenalin fixes. No purposeful economic activity was engaged in. Which is apparent in the very word ‘speculation’, which consists of wagering on some future outcome.
If it has an effect on a market it is to increase the intensity of price fluctuations. And as there is often little behind these price gyrations but the constant influx of new money to the game, distortions are created and amplified in direct proportion to the sum of the moneys being added. For every dollar’s worth of actual value, a million can be wagered on its rise or fall. And the thing that becomes important is not so much the actual value of the item being wagered on, but the mood of the players crowded around the table.
A prime example of the trajectory this kind of activity takes can be seen in the rise and fall of Long Term Capital Management.
http://en.wikipedia.org/wiki/Long-Term_Capital_Management
The general strategy in this kind of game is akin to logrolling (in the sense that one party’s gain is reflected directly in the other players’ loss). If your footwork is fancy enough you can cause the other player to fall in the water. Then you win. Period. Anyone with a good word to say about LTCM’s effect on the legitimate financial markets is invited to post a response.
I can’t find a single good word to say about this kind of speculation. It is uniformly destructive, amplifying as it does the negative effects of the Terrible Twins, fear and greed, on rational market movements. This, I expect, is what is meant when we talk about speculators’ “vital signaling function”.
So is there something good to be said about speculators? Sure. When you purchase stocks or bonds you provide funding for legitimate enterprises and purposes. To the extent that there is risk, it is something of a crapshoot. And there are certainly players who don’t buy and hold but play the market, hoping to unload their investment high so the other guy can take the fall. But direct investment performs useful work… unlike bets on the direction some metric will be taking six months or a year from now.
I know this comment will move many to speak up. Please try to keep your comments from being mere boorish swipes at my person. If you can point out positive virtues that outweigh the destabilizing effects we’ve seen in recent years of massive speculation in hedges, derivatives and the like, I’d like to consider your points seriously.
Well, lets start with the “obvious destabilizing effects of tactics like naked short selling”.
It is not so obvious to me why this should be destabilizing except that it has a scary name.
“Recent hedge fund bets on the direction of the Greek economy hastened its crash”
But consider that over 7 years cheap credit was used to paper over the Greek problem. Calling the recent events a “hastened crash” really misrepresents the actual situation – it was a delayed crash.
“But direct investment performs useful work… unlike bets on the direction some metric will be taking six months or a year from now.”
Yes – but why should anyone care who is not in that kind of play? Ah wait, your bank will take your savings and gamble with them without asking you (stealing fully legally or course), while the government will do the big bailouts later, reducing your savings by a few percent (stealing fully legally of course). Which is the real problem.
It’s not obvious to you why naked shorts are destabilizing? They’re unbacked bets on the market, and can easily be used to manipulate it. Here, see how Wikipedia describes them:
“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. 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.”
They are dangerous in precisely the same way a loose cannon is dangerous on the deck of a frigate.
” It’s not obvious to you why naked shorts are destabilizing? ”
Actually, a lot of people out here would not be able to understand this dislike you have for instability. I for one am ready to live with it and accept it as part of life and nature. You, on the other hand, have an irrational wish to do away with that which cannot be done away with. Hence all your nonsense.
“Actually, a lot of people out here would not be able to understand this dislike you have for instability. I for one am ready to live with it and accept it as part of life and nature.”
I’m coming to have a greater understanding of opinionated guys in pajamas who’ve lived all their lives inside the cocoon that is life in the USA. You not only take for granted the blessings of civilization, you assume that whenever you decide to shed your protective covering, all the good things will remain– while the bad aspects will disappear. This looks to me like the view of the eight-year-old, angry with his parents, who decides to run away from home and live on his own. Sure, he’s free. But as adults, we know the kinds of things that will quickly happen to him.
Those who’ve lived on the outside call the USA the “Big Baby Carriage”. Because inside it we lead a charmed life, where everything is safe. Our bank accounts are protected, by a Daddy State institution, the FDIC. Without such laws and enforcement, imprudent banks would fail and there’d be nothing we could do about it. Or crooks could start up a ‘bank’ and just brazenly take our money. Hurrah, there’s no state to come to our defense!
Then there’s the matter of the US Dollar being a state-maintained currency. Maybe we could do better, theoretically, using lumps of gold at the store. But the transition from owning X number of dollars and zero numbers of gold lumps would be harsh indeed. Again, you have no yardstick with which to imagine the reality of life without protection. And in fact as the USD is the world’s universal currency, you can’t imagine the global destabilization that would occur once the money machine was broken.
What you can do is visit a place like Colombia. This US client state is ruled by fascist police forces in most areas and Communist police forces in other areas. The only parts that have no oppressive police presence are those indigenous areas where people have never had either money or possessions.
It’s plain unrealistic to suppose that the world’s richest country, once the forces of stability had been neutralized, would not be visited by the attentions of the world’s largest and most organized criminal gangs. That’s what has happened every other time in history that an empire has collapsed. And that is why virtually all thinking people innately vote for stability, no matter how much of a nuisance paying taxes is. Because our established government not only still leaves them with something, it enables them to get rich and see their savings protected under law. The thieves that would come in its wake would leave you with nothing.
What a freaking nut-job you are!!! I live in India; not in the US. I’ve seen far more bizarre things than you can even imagine. Find someone else to give your rubbish to.
” Our bank accounts are protected, by a Daddy State institution, the FDIC. ”
That’s called running with the hares while hunting with the hounds. Mighty dumb of you to bring this up.
” Without such laws and enforcement …… ”
Nonstop nonsense. What makes you think that the absence of the state means the absence of laws or their enforcement?
” It’s plain unrealistic to suppose that the world’s richest country, once the forces of stability had been neutralized, would not be visited by the attentions of the world’s largest and most organized criminal gangs. ”
And while they do that, stupid, lazy Americans would be twiddling their thumbs, wouldn’t they?
” Because our established government not only still leaves them with something, it enables them to get rich and see their savings protected under law. ”
Oh!!! You really have reserved the best for the last. Is this how the dollar has come to be worth only 4% of what it was in 1913? You call that protecting savings under law?
You are truly a master entertainer. Keep at it and we will all split our sides laughing.
You analysis does not explain how speculators “cause” any of the negative events you cite (but not to worry, my analysis below is also heavy on conclusions and light on analysis
).
Long Term Capital Management is a perfect case study to highlight why government intervention is bad. They (the Fed) propped up this firm when it was on the brink of collapse (not to mention the fact that it would not have collapsed in the first place because well capitalized “speculators” were trying to buy it when the Fed stepped in a snatched it from under their noses).
Long Term Capital Management did not cause inflation of the money supply. Socialized money caused this problem. Long Term Capital Management is a symptom of the core problem, and they would have gone under anyway for being a crappy speculator (it’s the comment section of a blog, forgive me for my use of nontechnical words such as crappy
).
To your point about not having ever heard anything negative about speculators:
” I don’t see anyone saying that on principle, all speculation is bad. Or even that all speculators are bad. Instead they point to the obvious destabilizing effects of tactics like naked short selling, which tend to make an already erratic market come apart at the seams. ”
Are you trying to say that the Europe loves speculators, it’s just that they despise every “action” a speculator takes?
Market transactions are conducted between buyers and sellers. If I start shorting a company someone has to agree to take my “bet”. My bet doesn’t cause a company to fall or lose value, the company has to be worth less than the market thinks it is for my bet to win (I’m straying from a proper definition of value here but it’s an easy way for me to get the point across). My prediction has to come true for me to make any money, otherwise I lose my cash and whoever took my bet wins.
There are shorts that take place in a boom, you have failed to explain why those shorts don’t cause a collapse while shorts during a bust suddenly have market shifting powers. There is something else “causing” all of these shifts, speculators are simply riding the waves.
You are concluding that naked short selling is the cause of a market collapse. The cause happened before the boom even got off the ground. The faster the collapse happens the faster it is over with an we can move on. Speculators do us a service by speeding this unpleasant process along, that is thier core contribution. Yes there is a winner and loser in the transaction but they spotted an incorrect price and took steps to fix it; the cash they make is their reward for being right. Don’t forget that they get punished for being wrong as well by losing their cash (in the case of Long Term Capital Management, and anyone silly enough to lend to them, they all should have cone under for being repeatedly wrong about how to invest; the Fed stepped in and took away the market’s punishment for being wrong).
You must keep in mind that the “boom” is bad and the bust is inevitable. Prosperity is certainly a good thing but an inflation induced (inflation of the money supply not price inflation) boom is bad. The sooner we get on with the inevitable, the sooner we can get it over with and move on with our lives.
If you need to understand where all of these conclusions are coming from this resource is very comprehensive: http://mises.org/store/Money-Bank-Credit-and-Economic-Cycles-P290.aspx
It’s a long read but it’s also free in PDF format on Mises.org if you wanted to skim through some of the key chapters.
Instead of reading the entire book, the Mises Academy also offers a course on many of the theories discussed in the book (includes reading assignments etc.).
By the way, great comment. You mentioned that it would move many to speak and I think it’s a great kick off to a few rounds of discussion on the topic. Although I disagree with the content, the comment itself is a perfect catalyst for further discussion. I’ll try to remember to check back to see how he discussion progresses (I still haven’t figured out how to be auto notified of responses).
I would challenge you to offer evidence that LTCM “would not have collapsed in the first place because well capitalized “speculators” were trying to buy it when the Fed stepped in a snatched it from under their noses”. It was going down with a resounding crash. There was only one group one willing to pony up the kind of money that would have stanched the outflow (some $1,850,000,000 gone down the drain as of August, 1998):
“Long-Term Capital Management did business with nearly everyone important on Wall Street. As LTCM teetered, Wall Street feared that Long-Term’s failure could cause a chain reaction in numerous markets, causing catastrophic losses throughout the financial system. After LTCM failed to raise more money on its own, it became clear it was running out of options. On September 23, Goldman Sachs, AIG, and Berkshire Hathaway offered then to buy out the fund’s partners for $250 million, to inject $3.75 billion and to operate LTCM within Goldman’s own trading division. The offer was stunningly low to LTCM’s partners because at the start of the year their firm had been worth $4.7 billion. Buffett gave Meriwether less than one hour to accept the deal; the time period lapsed before a deal could be worked out.”
So Buffett’s offer was rejected before the Fed stepped in to lead the charge to rescue the mess before it got even worse:
“Seeing no options left the Federal Reserve Bank of New York organized a bailout of $3.625 billion by the major creditors to avoid a wider collapse in the financial markets. The contributions from the various institutions were as follows:
* $300 million: Bankers Trust, Barclays, Chase, Credit Suisse First Boston, Deutsche Bank, Goldman Sachs, Merrill Lynch, J.P.Morgan, Morgan Stanley, Salomon Smith Barney, UBS
* $125 million: Société Générale
* $100 million: Lehman Brothers, Paribas
* Bear Stearns declined to participate.”
http://en.wikipedia.org/wiki/Long_term_capital_management
The problem was they’d bet heavily on the future growth of overseas dollars invested in economies like the Asian Tigers, Russia, Brazil, Thailand and Indonesia. They had a nifty little computer program telling them nothing could possibly go wrong– it was one of those rare “sure things”.
Then a Black Swan event occurred. As a matter of fact I think this was the one event that led to that term being coined.
“Long Term Capital Management did not cause inflation of the money supply. Socialized money caused this problem. Long Term Capital Management is a symptom of the core problem, and they would have gone under anyway for being a crappy speculator…”
No one said the meltdown “caused inflation in the money supply”. I believe we call that a red herring. And the core problem was the magnification of the effects of speculation by buying on margin, plus various other strategies for multiplying one’s footprint. It’s like one of those Asian ferries with 900 passengers. Then one of them shouts “Oh look, there’s a dolphin”. And all 900 rush to starboard to look at it. The ferry tips and sinks instantly.
This is precisely the kind of thing that’s corrected by having good rules in the marketplace. Absent such rules, it will happen over and over again until people get tired of watching the carnage.
What it really shows is the difference between Austrians and other humans. LTCM had wide repercussions in the market for securities; everyone was ‘inter-invested’. Banks would have fallen like dominos worldwide (as was the case year before last) if the Fed hadn’t stepped in to organize a concerted effort among some of the world’s major financial institutions to stop the music. To Austrians, no amount of someone else’s pain is of any importance. Principle must be upheld even if all the big banks fail and worldwide depression results. We non-Austrians don’t like having that much pain occur when it can be avoided. Instead of just saying crashes lead to fatalities, we like to bring the victims to the ER and try to save them.
You will probably agree though, it does point to the need for disincentives for the moral hazard that surely follows any bailout. And I would point to the need here for analysis to pinpoint the reckless behavior leading to the instability, and smart regulation to outlaw that behavior. Like what was enacted abroad following the Asian Crisis, that is, strict capital controls limiting the influx and outflow of huge sums of speculative money.
Good general advice for us in this age we live in, after our subsequent 2007 meltdown. But we probably won’t see it. So I would predict within another 10-12 years that we have another, even bigger market crash. And whoever’s president then, whether we have an R or a D, will bail the varmints out again. And again decline to force Congress to regulate properly. That would just be my guess.
“There is something else “causing” all of these shifts, speculators are simply riding the waves.”
To truncate my reply to the rest of your comment, what causes these shifts? The amplification of imaginary capital through reliance on inadequate capital reserves, margin trading and all the other tricks that can be used to get rich too quickly. They operate on the markets exactly like cocaine in a trader’s bloodstream. Things heat up too fast and before you know it, something crashes.
Such dangerous shortcuts amplify the effects of what otherwise would be ordinary trading activities. Instead of someone with a thousand bucks wagering that thousand for better or for worse, all of a sudden some group can aggregate the use of a billion to make a bet of a hundred billion. And from there, things CAN begin to get out of hand. These are not people using the Fed’s borrowed funds to bet with. They’re just using little pieces of paper saying if I lose I promise to pay a hundred times over.
And if they lose? Uncle Daddy can help them get back on the horse (providing they have a share in the USG, like Goldman Sachs). It’s a situation in need of a good repair, not just the relaxation of all the rules.
Sorry, I can’t accept wikipedia as a solid refutation of my argument. If you’d like I can go update the entry and then “prove” myself correct. Wikipedia is great for context, i use it all the time, but it does not count as a reputable source.
NEXT:
“No one said the meltdown “caused inflation in the money supply”. I believe we call that a red herring. And the core problem was the magnification of the effects of speculation by buying on margin, plus various other strategies for multiplying one’s footprint. It’s like one of those Asian ferries with 900 passengers. Then one of them shouts “Oh look, there’s a dolphin”. And all 900 rush to starboard to look at it. The ferry tips and sinks instantly.”
This is not a red herring. You are arguing that the speculation would have caused a meltdown had the fed not saved them. No one is saying that LTCM caused inflation, watch your own red herrings there.
I’m saying that the Federal government, through the Fed, cased inflation of the money supply and out of that negative things happen. These negative things are because of the inflation of the money supply and not because LTCM existed.
Even if LTCM had gone under, that would have been a good thing, not a bad thing. I’m not saying they made wise choices. Their strategies were horrible, that why they were about to go under in the first place. Making their strategies illegal is not the solution, the solution is to permit people who make stupid bets to lose what they bet when their “speculations” turn out to be false.
“This is precisely the kind of thing that’s corrected by having good rules in the marketplace. Absent such rules, it will happen over and over again until people get tired of watching the carnage.”
Sorry this is not true at all. Inflating the money supply leads to a misallocation of capital. Speculating is a symptom of the boom not a cause. Someone has to agree to take these bets. Without the distortions to the money supply LTCM would not have been able to do the things they did
“What it really shows is the difference between Austrians and other humans. LTCM had wide repercussions in the market for securities; everyone was ‘inter-invested’. Banks would have fallen like dominos worldwide (as was the case year before last) if the Fed hadn’t stepped in to organize a concerted effort among some of the world’s major financial institutions to stop the music. ”
I agree with you here actually. This is where Austrians differ. Austrians believe that the Federal reserve system caused these problems and you believe they did not.
Now this is an important point to make. The Federal Reserve itself believes that without them our modern banking system would not be able to exist. Precisely! The modern fractional reserve banking system is what causes the boom bust cycle.
To your point about us being cold and not caring about pain, now that just hurts my feelings. We believe inflation of the money supply through the credit markets causes all of this pain and we advocate that the gov stops doing this. Because we advocate something that will stop the pain you somehow want to say that we suddenly don’t care about people getting hurt?
“To truncate my reply to the rest of your comment, what causes these shifts? The amplification of imaginary capital through reliance on inadequate capital reserves, margin trading and all the other tricks that can be used to get rich too quickly. They operate on the markets exactly like cocaine in a trader’s bloodstream. Things heat up too fast and before you know it, something crashes.”
Without a central bank this fake capital would not be available for the activities you deem negative. LTCM is not the creator of this imaginary capital
Can I recommend an essay for you to read? It may be easier to let Murray say it (if you haven’t yet noticed I am no scholar):
http://mises.org/money.asp
If you read this an still disagree there is really nothing more I can say. Rothbard says it much better than I ever could.
“Sorry, I can’t accept wikipedia as a solid refutation of my argument.”
You’ve knocked Wikipedia’s version of events without substituting one of your own. And for you, that’s sufficient. I can see you clearly. There’s no need to build a case based on observed events, as Wikipedia has done.
Next, here’s your statement: “Long Term Capital Management did not cause inflation of the money supply. Socialized money caused this problem. Long Term Capital Management is a symptom of the core problem, and they would have gone under anyway for being a crappy speculator…”
If you want to blame things on our socialized money, let’s also give them credit for this: Through the US dollar we have created not only the strongest, richest economy on earth, we’ve seen its benefits descend down to the lowest levels of society. Unlike the Romans or the British, we’ve seen even our jobless underclass able to watch TV with the expanded cable package. We must be doing something right.
So if it’s still possible within out financial structure for an investment group to go wrong, I would not lay the blame at the feet of the dollar. I would offer that it was due to mistakes on the part of people who thought they were omniscient, and had invented a sure fire way to get rich quick.
This is a very weak argument to be making. If you were to imagine an alternate future for the United States, one hundred years from 1910, where the Fed had never been created, let’s imagine one where none of the wealth consequent to such decisions had ever been made. Imagine us as all still free farmers, taking our crops to the railroad depot so they could be sold in the cities. Imagine only a handful of vast concentrations of wealth, with everyone else still ‘the little people’, with their hats in their hands looking for work. Because everything that’s happened in our financial sphere since 1913 has been based on the expandability of credit.
So then, you say “This is where Austrians differ. Austrians believe that the Federal reserve system caused these problems and you believe they did not.”
Not quite. Our current financial system was unable to prevent these problems, but only because regulations designed to prevent them were not in place. Meanwhile, that same system put kazillions of dollars in the hands of people so they could play with them in the first place. And it seems apparent to me that without this system we’d probably have been the poorer today.
In the olden days, when coins of gold and silver were the only good money, the peasantry (I’m thinking that would probably be you and me) were only given coins of copper to play with. That’s because the labor of their backs was worth nothing.
But that’s okay. Were the world banking system to fail utterly, and everyone be declared flat broke and the dollar worthless, it would be a giant step forward. It’s open and shut. Prima facie. “If you read this an still disagree there is really nothing more I can say.”
” Through the US dollar we have created not only the strongest, richest economy on earth, we’ve seen its benefits descend down to the lowest levels of society. ”
You: A occurs. Subsequently, B occurs. Hence, A caused B.
Me: ???????
Bala– You could always look for an instance where a nation adhered to gold-backed money and attained a level of broadly based prosperity comparable to the United States. But I don’t think you’ll find one. We’ve created, over these past hundred years, the most stable and prosperous nation on earth. And with funny money, at that.
Furthermore, every other nation is in agreement that our money is the best medium in which their value can be stored. They bank in dollars. They trade in dollars. They save dollars. They spend dollars. Just as though it was ‘real money’.
So to return to your logical postulate, A (funny money) has occurred. Yet that has not prevented B (widespread prosperity) from happening. In the sense that A has not precluded the possibility of B, A has led to B. This does not, however, imply that there can be no possible way to get to B without going through A. Nor was I implying that
” But I don’t think you’ll find one. ”
18th & 19th century America.
” We’ve created, over these past hundred years, the most stable and prosperous nation on earth. And with funny money, at that. ”
I would consider myself a blabbering fool if I used this to infer that the funny money played a role in creating “the most stable and prosperous nation on earth”.
” So to return to your logical postulate, A (funny money) has occurred. Yet that has not prevented B (widespread prosperity) from happening. ”
All you are in a position to say is “Not yet”. To say anything else is the height of stupidity.
” In the sense that A has not precluded the possibility of B, A has led to B. ”
Utter nonsense. Taking a leaf out of Stephen Grossman’s book, throwing virgins into the volcano has not precluded the possibility of rain (which actually came pouring down). Hence, throwing virgins into the volcano has led to rain.
See? I’ve made you show how full of crap you are.
Or, to put this into more generic form, by selecting an arbitrary subset of reality one can arrive at any conclusion.
“Instead they point to the obvious destabilizing effects of tactics like naked short selling, which tend to make an already erratic market come apart at the seams.”Obvious? I suppose if the media repeats a fallacy long enough, it becomes “obvious” to the unimformed. Real research into this supposed phenomenon shows it to be a red herring:
In essence, what she is saying is that naked short sellers sell on days that the stock is high and buy it back on days that it is low. The fact that they do not have possession of the stock at the time of the sale does not have a measurable effect on the outcome.
“Please try to keep your comments from being mere boorish swipes at my person.”
What is it about you that elicits that response? I think that comes from a perception of insincerity. You can affirm or deny that as you will, but I go into most debates of this kind with the expectation that I will not change the other person’s opinion. I find that most people only engage in these kind of debates when they feel secure enough in them as to think them virtually irrefutable. When you claim that you are open to new ideas, it implies that you might be uncertain about your own claims. (Everyone is open to new ideas, but the degree and to which ideas varies.) When a well-reasoned argument or research is placed in front of you that goes counter to your claim and you seem to ignore it, or counter it with anecdotal evidence, it makes your claim of being “open to new ideas” seem to be your way of saying that these counter-arguments are too weak to even consider. This inflames people, because many of us feel that we have some damned good arguments, which all to often are met, not with logic, but with appeals to emotion or with poorly-correlated statistical analysis. Consider, for example, the libertarian Non-Aggression Principle (Murray Rothbard forumlation):
“No one may threaten or commit violence (‘aggress’) against another man’s person or property. Violence may be employed only against the man who commits such violence; that is, only defensively against the aggressive violence of another. In short, no violence may be employed against a nonaggressor.”
This is the essence of libertarian thought. Violence here means physical assault and theft, with fraud included under theft. Can you make the case that naked short selling is fraud, by this definition? I don’t think that you can. Failure to deliver can be a breach of contract, with attendent penalties, but it should not be considered a crime. Is it immoral? Possibly, if the intent of the seller really is to manipulate the stock price for personal gain, but the study I linked to above suggests that such ideas are pure fantasy, cooked up by business leaders trying to hold off the inevitable failure of their company.
Would you agree that the non-aggression principle is a good first principle for a just legal system? I find that utilitarianism and relativism are the only strains of philosophy mucked up enough to withstand the clarity and universality of the NAP.
Poor Michael, so utterly gutted by this.
Excellent article you’ve pointed me toward. But I’m thinking the author generalizes excessively, by pointing toward the notion that naked shorts CAN work toward increasing market efficiency, and that you are using this to refute the idea that they CAN provide both the motive and the means to force prices downward. To wit:
“In following this strategy, naked short sellers are able to profit from declines in stock prices without incurring the cost of borrowing shares.”
Combine that thought with this:
“News of increased naked short selling may stigmatize a stock by sending a negative signal regarding the quality of the security and the risks associated with investing in it. News of naked short sales may be more damaging to the reputation of a company’s stock than news of covered short sales if naked short selling is perceived as a more manipulative activity.”
So if it CAN be used to force an induced direction in sales price, whether up or down, it’s obvious it WILL be used as a tactic to manipulate the market.
Other than that, I find the paper very interesting. On to your next point:
“What is it about you that elicits that response? I think that comes from a perception of insincerity. You can affirm or deny that as you will, but I go into most debates of this kind with the expectation that I will not change the other person’s opinion.”
Looking at my own history here, I do find insincerity, combined with the usual slurs on my character on the part of people who can’t argue from the evidence or the logic. So I was just hoping to save some of the usual suspects from posting comments like the following, from the aptly named Inquisitor:
“Poor Michael, so utterly gutted by this.”
When I’m the subject of knocks like this, I am devastated.
But I find the same thing you do: most people only read and contribute to forums inhabited by people they agree with. Thus their comfy preconceptions are never challenged. And they never call on themselves to think very hard.
I’m not like that. I doubt I’ve ever commented in a forum full of people I agree with. What would be the purpose? I come here to learn and be challenged. And frankly, comments on the level of yours are all too rare here at Mises.
“When you claim that you are open to new ideas, it implies that you might be uncertain about your own claims. (Everyone is open to new ideas, but the degree and to which ideas varies.) When a well-reasoned argument or research is placed in front of you that goes counter to your claim and you seem to ignore it, or counter it with anecdotal evidence, it makes your claim of being “open to new ideas” seem to be your way of saying that these counter-arguments are too weak to even consider.”
When I say I’m open to new ideas, it implies my mind is open, and that no one holds the patent on total truth. There is no truth, in fact, that holds up in every instance. So I like to admit new knowledge, thus to improve on what I already have. To you, this denotes uncertainty?
If I seem to ignore arguments that go against my comments, it’s because time is a finite thing and I have lots of people, some of them intelligent and worth responding to, piling on. There’s not always time in the day to address everything on their mind. And in fact just yesterday I took a half hour out to address in close detail a number of worthy points Peter made, on another thread. Sadly, they were either moderated or lost. I suspect that’s because my comment was overly long and fell into the ‘dump’ file. But I try to address all legitimate arguments.
“Everyone is open to new ideas, but the degree and *to which ideas* [emphasis] varies.”
If I can sum up my experiences here, as opposed to the people I meet at some other sites, Austrians tend to be the most dogmatic, closed-minded, open-and-shut people I’ve had the dubious pleasure of attempting to debate with– excepting a handful like you, Matthew and Peter. But you and they make up for this, and make the experience worthwhile. For others it’s sufficient that I be written off in advance, as a ‘Keynesian’. Which is like the preacher invoking the work of Satan.
In fact if I can over-generalize, the last crowd of schismatic economists I can recall, who were so reliant on their brand of received wisdom that they never once even conceived of the need to look for any demonstrable relevance in the real world of commerce, was the Marxists. I find these two groups have so much in common.
I will finally here summarize a lot of specifics, past, present and future, into one argument. If you seek to reinforce some point of dogma by finding a case where it holds true, that’s laughably easy to do. And then you have the ‘proof’ you desire. But if instead you try to falsify an argument, looking for areas in which the argument will not hold, then you open up a whole new world of inquiry.
You find that all insights have some worth, and that no brand of Truth is universally valid. You will have become an adherent of the Scientific Method, and your area of expertise will have become elevated from being a mere philosophy to becoming a true branch of science.
Re: MIchael,
You mean to say that the Greek tragedy was actually a self-fulfilled profecy? That defies logic: Specultors bet on something that may happen, but they don’t make it happen.
Actually, it requires suspension of reason to believe such a thing. What would a “responsible” activity look like, according to you?
How about the destabilizing effects of the playing with the interest rate by the Fed? For some reason you left it out . . .
“You mean to say that the Greek tragedy was actually a self-fulfilled profecy? That defies logic: Specultors bet on something that may happen, but they don’t make it happen.”
So then, in your understanding of group psychology, if the heaviest players in the game all stand around shaking their heads, saying “Ooh, THAT was big mistake”, the rest of the crowd won’t suddenly panic and rush to the exits? And that the sudden flush of all that money leaving the investment won’t self-fulfill the prophecy of its demise?
It does happen. That’s precisely the way it happened in the Asian markets back in 1998. The rug got abruptly pulled out from under a lot of heavily exposed people.
The Fed exists, among other things, to decide at what rate it will extend credit to its major customers. That’s its prerogative. And depending on whether it moves wisely or unwisely, its decisions can either have a stabilizing or a destabilizing effect.
Let’s say you disapprove of all this, and just want the Fed to die. Fine. What happens then is that major investment banks run short of cash one day and fail. There’s no well to go to in adversity. And ordinary people’s savings die through no fault of their own– or even any awareness that something’s about to go wrong. Experience has taught us that bankers tend to run through a prudent level of reserves in order to put every dime they can get their hands on into some kind of wager on the future. Otherwise they think the money’s doing no work.
So, if you DON’T have a lender of last resort and you DON’T have a body of effective regulation enforced from outside the industry, you have recurrent bank failures so routine that people no longer wish to put their own savings into the slot machine. They use their mattress instead (or as you might think of it, GOLD). And the financial markets become starved for funds.
Please try to take this argument very seriously. It lies at the root of why it is we have what we have: a lender of last resort and regulations that act to preserve the markets– by protecting them from people’s worst instincts.
We can say any number of things about the Fed and its effect on markets. But we should force ourselves to admit that there are many positive things it does. It’s a safety cushion, that keeps a lot of knees from getting scraped up when they hit the sidewalk. And yes, I agree, it can be overused. Like any powerful tool, it needs to be wielded adeptly.
“We can say any number of things about the Fed and its effect on markets. But we should force ourselves to admit that there are many positive things it does.”
Force ourselves to lie? No thanks.
Re: “increase the intensity of price fluctations”: are you referring to volatility? Typically, the fewer participants in a market the greater the volatility. Why do you think “hedge fund bets on the direction of the Greek economy hastened its crash”? Can you point to a trade or series of trades that you have found to have had this effect?
michael,
Back to your drivel
” No purposeful economic activity was engaged in. Which is apparent in the very word ’speculation’, which consists of wagering on some future outcome. ”
ALL economic activity is a form of human action. All human action is purposeful. Hence, your first statement is as meaningless as can be. As for the second, all action consists of wagering on some future outcome. Your vacuousness seems to know no bounds.
This is apart from all the swipes you are taking at others for acting in violation of your standards of behaviour.
Any time someone relies on something being “obvious” to prop up an essential part of his argument, that is most likely the spot where his error is. Saying something is “obvious” is a way of telling yourself or others not to delve any further into that point. (“Pay no attention to that man behind the curtain!”)
Speculators transmit economic truth, whether that truth is good, bad or ugly . Speculation didn’t “hasten” the collapse of the Greek economy. That’s idiotic. It transmitted the truth about the Greek economy, which was built on lies.
Only political hacks and their cronies (and the ignorant yes-men dupes like michael who carry their water for them) want economic truths to remain hidden for as long as possible. Of course they do. They’re professional liars. From their perspective, the truth is a problem.
Pure and simple: Sovereign debt is the crime, and blaming speculators for the ill effects of that crime is the cover-up.
I’m not near as educated as most of the readers on this sight, having said that take in consideration, I believe in what the aurthor is saying, adding that politicians and the central planners and the media use the words differant to their meaning placing an imagine in the publics mindstream ( diversions). WE all know the word ” inflation” is terriably misused.ALso the media’s misuse of the word “liberal”. Who is the far “right” or the “left”……a delusion placed in you mind stream by an authority.
To the author, I especially like this line “Would any patient really blame the thermometer for his fever?”
Well said!
Michael,
Most people here view you as an agent provocateur. An article is written to dispel some mainstream fallacy. And you critique that article repeating those very same fallacies without addressing why the arguments put forth in the article against those fallacies are wrong. And typically, you leave out the elephant in the room, government intervention.
If I were you, I’d keep shut my mouth until I were able to coherently refute the arguments. The more you write, the greater the scorn heaped on you by this community.
In any event, there will come a time when your delusional beliefs will bite you in the butt. Try for example to spite the Mises community and hold all your savings in government bonds. Then, crawl under a rock and check back with us in five years.
“And typically, you leave out the elephant in the room, government intervention.”
Fair enough. I’m not a big fan of government intervention either. They always either seem to do it stupidly and ineffectually, or they pretend to intervene while acting as the witting agents of craven interests. I note here that our government has not hired me to act as agent provocateur on your forum. I’m here to try to get people to think about their dogmas and beliefs, not just to quickly attest their total agreement.
What I uphold is the NEED for some kind of intervention from a governing source outside the markets. Something similar to the need to have police who haven’t been hired by the crooks. That’s the ideal; we fall short of it in our current reality, but I see no need to write off the possibility that we can create an effective and honest police force for our largest financial dealings.
“And you critique that article repeating those very same fallacies without addressing why the arguments put forth in the article against those fallacies are wrong.”
If you feel in critiquing the conclusions of some article I have overlooked a vital point, or ignored relevant data, bring those specific charges to my attention. I’m here to learn as well as to suggest that error has occurred. And I’d like to hear out your objections. If you can put them into cogent argument.
“If I were you, I’d keep shut my mouth until I were able to coherently refute the arguments. The more you write, the greater the scorn heaped on you by this community.”
Only a portion of it. And not the better portion.
“In any event, there will come a time when your delusional beliefs will bite you in the butt.”
My beliefs, whether founded or delusional, are subject to modification in light of either good evidence or good reasoning from the evidence. Show some. That’s the way to defeat my evil influence. Just tossing out churlish insults isn’t going to do it.
One of the problems with this argument is that the only way to define something “outside the markets” is that it is allowed to initiate violence. Some of us have an inherent dislike for the initiation of violence and consider the utilitarian claim that the benefits outweigh the costs irrelevant. The second problem is that it is quite rare from the statists to even attempt a utilitarian argument, most of them merely point out some benefits and ignore the costs altogether. The third problem is that from praxeological point of view (you know, the inability of interpersonal utility comparison and so on), the benefits can never outweigh the costs. The initiation of violence does not eliminate economic laws.
I think it’s incumbent on you, as advocating change, to illustrate (I won’t say ‘prove’, that’s a dumb way to talk) that the benefits of such change would outweigh the costs. Are you of the school that says fiat money should be eliminated?
Then show us how the transition would work. Let’s say I have a million bucks in a basket of stocks and bonds. How would that million be translated into non-fiat bucks? Or would it just cease to be, and I could have the opportunity of starting over again, at zero?
I’m keeping an open mind. It’s just that so far, my imagination is sending up red flags. Lots of them.
” Then show us how the transition would work. ”
For a start, read Rothbard’s “The Mystery of Banking”. He has given one method. There are others too.
http://mises.org/books/mysteryofbanking.pdf
Read the last couple of chapters alone for the answer you are looking for.
As suggested, I’m now reading the last chapter of The Mystery of Banking, that is, Conclusion: The Present Banking Situation and What to Do About It.
In describing the problem the author (Rothbard) perceives, he says this:
“Before 1929, every administration had allowed the recession process to do its constructive and corrective work as quickly as possible, so that recovery generally arrived in a year or less. But now, Hoover and Roosevelt intervened heavily: to force
businesses to keep up wage rates; to lend enormous amounts of federal money to try to keep unsound businesses afloat; to provide unemployment relief; to expand public works; to inflate money and credit; to support farm prices; and to engage in federal
deficits. This massive government intervention prolonged the recession indefinitely, changing what would have been a short, swift recession into a chronic debilitating depression.”
I’m not impressed with Rothbard’s powers of analysis. First, he neglects to look at the gravity of the Great Depression. Certainly he knows it’s in no way comparable to shallow recessions, whose duration can be as little as one year. And second, he professes ignorance of those prior American depressions that have run for numbers of years. So I can identify sloppy thinking, as well as suspected intellectual dishonesty. Not to mention, failure to support a stated thesis.
Next, when he says “This massive government intervention prolonged the recession indefinitely, changing what would have been a short, swift recession into a chronic debilitating depression.” he again offers no evidence! It’s just an unbacked assertion! This indicates he’s writing a polemic, and not a serious work of scholarship.
Back to the chapter (I’ve only read the first page). His very next statement is this:
“Franklin Roosevelt not only brought us a chronic and massive depression; he also managed to usher in the inflationary boom of 1933-37 within a depression.”
Not just wrong in every sense, but a flat out and blatant lie. The Depression occurred and became entrenched during the prior period, 1929-33. So the person becoming president in March, 1933 could not have caused it.
Now let’s ask whether there was any “inflationary boom”. Allow me to produce the Historical Inflation Data tables from 1927 through 1938:
http://inflationdata.com/inflation/Inflation_Rate/HistoricalInflation.aspx?dsInflation_currentPage=6
Let’s take 1929 (conveniently a year with a zero inflation rate) as 1.00. Now let’s augment that figure by the amount of each subsequent deflationary year’s rate (as the dollar will then be worth more than 1.00) and diminish that figure in the amount of each inflationary year’s rate (as the dollar will have become less valuable). What do you get?
I get, by the end of 1938, arguing to the fourth decimal, 1.1230. What does that figure mean? It means that a dollar that was worth 100 cents in 1929 money was, by the end of 1938, worth a bit more than $1.12. That is, our money in Roosevelt’s hands had become worth MORE than it was before the Crash.
Try it yourself, and see whether you don’t agree. Rothbard’s artifical cutoff of those deflationary years prior to 1933 led to a false conclusion. A false conclusion I’m sure he knew he was fostering.
I won’t read further. I’ve seen enough.
michael,
You are truly mind-boggling. The explanations you are “looking for” is provided in the preceding sections of the book. The last chapter contains only the summary of the conclusions drawn across the book in order to decide on a course of action.
Vacuousness personified! That’s what you are.
“I won’t read further. I’ve seen enough.”
Yeah, you saw the conclusion without the argument of why. And Hoover isn’t given a good grade by Rothbard either, for his attempt to keep wages high in the 1929-1933 period.
Just search for “Hoover” in the text, it’s not hard to find..
” a recession that was made into chronic depression by massive interference by Presidents Hoover”
“Hoover… intervened heavily: to force businesses to keep up wage rates”
“The actual cause of this, however, is the underlying fiscal policy of the country in question, and not the speculator’s purchase.”
more interest, more debt. chicken and the egg.
“In doing so, multitudes of market participants reveal data that otherwise could not be gathered.”
poker players reveal data about each other. not very interesting if you’re not a gambler.
“more interest, more debt. chicken and the egg.”
Are you suggesting that speculators cause countries to have poor underlying fiscal policy?
“poker players reveal data about each other. not very interesting if you’re not a gambler.”
The point here is that poker players do not cause recessions, neither do speculators. They both reveal data. No one is suggesting that we create government programs to help speculators, we’re suggesting to stop “declaring war” on speculators and their practices. What the harm in either case, poker players revealing data or speculators revealing data, (besides of course some people in the world doing uninteresting things from time to time)?
“Are you suggesting that speculators cause countries to have poor underlying fiscal policy?”
Nope! But they can make repaying debts more difficult regardless of underlying fiscal policy, which is what interest rates reflect.
“The point here is that poker players do not cause recessions, neither do speculators.”
Nope! Here was the original point:
“In doing so, multitudes of market participants reveal data that otherwise could not be gathered.”
The author is saying that all speculators (indistinguishable from other market participants, in the author’s view) provide valuable information about market preferences. My point was that some of that information is about the preferences of other speculators.
Interesting reply but I’m having trouble picturing speculators as something other than a market participant. Like a separate class of participant all on their own?
For me, I’d group them in with everyone else. I may invest money as in a retirement fund “speculating” that it will go up overtime (or at the very least retain the value I put into it, inflation adjusted of course). But I might also hedge by bets with a short or two in case my initial “speculation” proves false.
In reality, I’m no sophisticated investor so I end up hiring someone else to do the speculating for me. Would that be the speculator class you’re referring to?
Either way, at the end of the day the author is advocating that governments do not take steps to purposefully harm speculators. If we assume your point is correct, even if the only benefit a speculator offers is extra data for other speculators, there is still a solid case to not purposefully use government force to harm them. Speculators are not doing harm or causing harm.
“Like a separate class of participant all on their own?”
yup!
“But I might also hedge by bets with a short or two in case my initial “speculation” proves false. . . . Would that be the speculator class you’re referring to?”
nope!
It’s really hard to define speculation. But the gist is that speculation is a type of investment that can only be profitable if other speculators lose money. It’s a kind of economic rent-seeking. Poker playing is almost a perfect example. You can also think of people who “invest” in beanie babies, old coins, or other kinds of collectibles. Yes, there is money to be made by anticipating a change in preferences for those kind of things. But there is also money to be made (and lost) in mini asset bubbles that pop up when lots of other people start speculating in them. No investment is perfectly speculative or non-speculative.
“Speculators are not doing harm or causing harm.”
This is where we strongly disagree. When people start creating asset bubbles in industries that employ people, businesses rise and fall based on the poker games that they are playing. Shutting businesses down and starting them up is not costless; the rest of us pay for it in lost pensions, bankruptcy courts, and unemployment lines. We are part of the poker game whether we want to be or not.
Consider the case of a country that can pay its debt off at 5%. If speculators succeed in raising the interest rate to 15%, they can force the country to default. The economic effect may technically be exactly the same: the country simply partially defaults an pays 5% to its creditors rather than the promised 15%. But the effect of the default will obviously be different.
Similarly, as long as a company is solvent, diluting its shares to pay down its debt technically accomplishes the same thing as a bankruptcy: it uses equity to pay down debt. So, in theory, a company that short-sellers force into bankruptcy should be worth exactly as much as if it never were forced into bankruptcy. But because short-sellers can force the government (bankruptcy courts) to intervene, they can cause the company to be liquidated, perhaps at a fraction of its worth. In the end, short-sellers may lead the government to shut down a perfectly viable, solvent company. Shareholders may end up with nothing, creditors may receive pennies on the dollar, and employees may be out of work.
Speculators are not passive observers. No one is. Everything is connected to everything else, and there is no such thing as a free lunch.
“. . . there is still a solid case to not purposefully use government force to harm them”
There is a case to be made against using government policy to limit speculation, but the author hasn’t made it.
I agree with the keynote of the article. But I think some essential parts are left out.First: In a world of cheap money speculation and risk-taking is cheap too. Therefor speculators benefit from excessive profits. A large part of this easy money will most likely be malinvested (not only in other cheap and risky speculation) and create new problems.And more important: There is useless speculation without any benefit for society (e. g. when a speculator bets on a bet that another bet will go bust). When banks have to be bailed out because of useless and wrong speculation malinvestment is getting worse. These has certainly nothing to do with free markets.Cheap money leads to unnecessary risk taking and to excessive speculation which leads to bubbles. The impact (malinvestment) of todays speculation is therefore larger and has more unpredictable effects and makes marktes more fragile.
Banks do not “have” to be bailed out. Whenever the government messes around with markets they make things worse, and bailouts are no exception. The answer to problems caused by government intervention is NOT more government intervention. See Don’t Bail Them Out for a more complete explanation.
Dear Anthony, I completely agree with you.
But I never wrote, that banks “have” to be bailed out and that governments “have” to intervene. My point is, that we don’t live in a world of free markets, free money and without government intervention. The fact is quite the opposite: We live in a world of government intervention, cheap central bank money, government bail outs and so forth. And that’s why it seems to me important to point out that the role of the speculator in TODAYS REALETY looks different and can have unintended side effects.
We can denial todays reality and say that speculators do not harm anything at all even in a world of cheap money. But exactly this approach will harm Austrian Economics, because people on street will have a different feeling about speculation and therefore reject Austrian Economics. So it is important to see the big picture of reality and not only in an ideal world.
This really should have a longer explanation but, Dave, speculators are a symptom not the problem.
Banning them will not solve anything.
When central governments try to inflate the economy, if a speculator will not help them do so then the governments will do it themselves. (a more immediate result of a ban on speculators would simply be a rise in “new” forms of speculating.) To illustrate this point further look at how new money is made; without someone borrowing the money the infaltion cannot occur. If the gov decided to inflate and no one borrowed, they would simply pump new funds in (quantitative easing and stimulus bills ring a bell).
When new money is created it must go somewhere. Banning one “use” of all this new fake money simply results in new uses. Without devising a scheme to eliminate uncertainty (good luck with that one) speculation will always occur.
Sorry Dave, I have a better explanation (I really should have waited a little longer before replying).
My note at 7:57am really just says that if the government wants a boom they are going to get a boom regardless of any legislation to restrict speculation.
Your notes about today’s reality are more about the bust.
Here’s a better way of looking at the entire situation. Monetary inflation causes people to invest where they should not. To correct this misallocation of resources, prices need to adjust to get people investing where they should again. This is true because during the boom misallocation is essentially “burning” wealth and resources making us poorer. It’s like spending all of your retirement money in one year, sure you are living large but you are burning your wealth in the process (it seems that you agree with this point but I like the analogy and though I’d include it anyway
).
In short, the more speculation we have the faster the process of ending the misallocation occurs. Money should not be pumped into Geece it needs to be pumped out of it. The sooner someone throws up flares indicating this fact the better. These are the signals/communications everyone keeps referring to.
The negativity is caused by money pumping. The money pumping causes a negative cycle, this is inevitable and they only way to stop or avoid the cycle is to stop artificially inflating the money supply. Speculators simply speed up the process of getting this cycle over with (on both the upswing of the boom and the downturn of the bust). If it’s going to happen anyway, isn’t it better to get things over with in record time?
As side note here, if I’m wrong about the speed can someone point this out? There’s a chance I am. Restriction speculation could simply result in prices plummeting anyway at the same pace.
A final note about speculation in general. Shorts are a good way to hedge a bet. If you believe a company’s price will go up, then you invest in the company. However, if you are a little concerned that the price of something else falling will hurt this company, you hedge your bet with a short (so you are covered on both ends).
If someone is involved in shorts for a reason other than hedging a bet, they’re still offering someone else the opportunity to hedge their own bets (think insurance, they are the opposite in that the rake in the cash if nothing bad ever happens)
North, thanks for clarification. But I didn’t write that I’m against speculation and that I blame speculators. Again, I completly agree with your statement and with the article on the keynote. But this statements are ONLY true in an ideal world.
You worte yourself:”Money SHOULD not be pumped into Geece it needs to be pumped out of it.” That’s the whole point I try to make: Money SHOULD be pumpt out of Greece. But because of government intervention speculators do NOT pump money out of Greece instead pumping more money in, aware of government bailing them out and the ECB backing up the junk bonds (moral hazard).
The correction of misallocation in todays environment is clearly not happening as you write, on the contrary, makeing the situation worse and more dangerous. The next time this bubble bursts, it will be much more severe.
Again, this is the point I try to make. In a world of cheap money and government intervention speculation can inflate a bubble for much longer and the bust will be postponed in distant future. Correction of misallocation is therefore prolonged in future too. And certainly when the bubble bursts the conditions/ consequences will be worse off.
In short, speculation can be very helpful, as you and the article points out. But in todays conditions one must be very careful with such a generalized statement. In other words, one can not say for sure that speculations in a world of cheap money and moral hazards, caused by government intervention, have never severe and unpredictable consequences.
Again, my statement referes not to a world of free markets and free money without central banks and government intervention.
I see where you are coming from but if we take the following to be true, then speculators are doing good even in our present market:
1. When governments inflate the money supply through the credit markets a boom must occur
2. The boom must occur before the bust and both are inevitable
If you take those two points to be true, then Greece pumping out Euros means a false boom must take place with that money. When this is over the bust happens.
The IMF starting the process from the top again means that the bust must be put off but still it must occur.
It’s the ‘getting on with the boom so we can get over the bust’ that makes speculators helpful even in this current reality.
Someone else had a good point here (it’s Bala below but I’m not quoting, I’m simply paraphrasing very heavily). How are speculators any different from other capitalists and entrepreneurs?
Anticipating price changes and buying or selling to make a profit is not bad behaviour in any market. Making a profit encourages others to follow you (if of course you are correct otherwise your heavy losses send another message). More people buying lets prices rise and more people selling lets them drop.
I cannot make a connection between something being good “in a truly free market” but deciding that it is bad because of government distortions. If you ban short selling people will simply drop prices another way, by not buying stocks and bonds for example. Speculators doing what they do, i.e. what many are saying they should not be doing, is simply one way of facilitating a series of events that must happen (the boom/bust). Banning one method does not get rid of the boom and does not get rid of the bust (the only way to do that is outright socialism which has other negatives attached to it).
I know based on my posts here it looks like I want to be disagreeable but I’m really just trying to get across a few points that I’m not sure that everyone will agree with (those two points numbered above). Based on what I know there is no way to avoid the boom (besides complete and total socialism) and there is no way to avoid the bust. The severity is due to the amount of money pumping in and not the methods speculators use. It’s this cause and effect that it I’m trying to get across.
All of that being said, I’m still open to being corrected where I’m wrong in saying these things.
That’s the whole point. Government policy and intervention has created the moral hazards that banks, speculators, and others are simply taking advantage of. Blaming speculators for our economic problems is like putting candy on the table and then blaming those who grab for the candy. Who put it there in the first place?
quote from michael, “When you purchase stocks or bonds you provide funding for legitimate enterprises and purposes.”
I think this applies only to the first person to purchase the stock or bond. The issuing party is only entitled to the money from the sale once. You may be trying to express that you think the stock or bond should be purchased for holding only and all subsequent trading is a waste of time and effort, and maybe even that it is immoral or worse, evil. It is not that clear to me, so I am just asking.
Or, you may mean that it is OK to trade that stock or bond at some time in the future, if you need the money for something else more urgently, but in that case you think it is only acceptable to sell it for the same price that you paid for it, allowing for a reasonable rate of return, of course. Is this what you mean? One company going bust may wipe out all that reasonable rate of return on the other nine companies whose stock I also bought. If I am to forego the hope that one of those nine will pay off big, compensating my loss on company one, please tell me why I would want to buy any company’s stock, if you can. Remember, I am one of the unfortunates that actually have to get up and go to work. Just looking for clarification, that’s all.
It appears that you have a visceral objection to the seemingly fickle shifting of value placed on the objects in the market. If this is the case, I can understand you completely. It sucks. It is chaotically unpredictable. At times the actions of the market participants themselves cause the valuations to change. There is no safe harbor.
But if you think you can improve the situation by changing the rules or by adding more rules, I guess that we must part company on that point. Sometimes bad is as good as it gets, and new rules just change who is favored in the deal.
Maybe you can explain it, so that I can actually understand, why the government, the US of A government that is, felt compelled to take action to prevent the collapse of all that higher order gambling. No one has successfully done so, yet. I seriously will not fall for the lame “the market will collapse if we don’t” bs.
cordially,
Don
Actually, you have raised a very pertinent objection to michael’s position. Just recalling his statement
” When you purchase stocks or bonds you provide funding for legitimate enterprises and purposes. ”
Taking this one step further, it is the presence of a market where those who buy the shares initially may sell them to others at a later point in time that makes it possible for businesses to raise capital. I am seeing this up close and personal as I am trying to get a few friends of mine to invest in my venture and the most fundamental question I get from them is “What are my exit options?”. Since my firm is a Private Limited Company, it is not easy to sell its shares. I really have to work hard to convince people to invest their money in my firm (I hope to succeed soon).
So, in effect, the actions of speculators actually play a major role in the very creation of the capital markets. To deride the role of the speculators as Michael does is to deride all economic progress made till date.
Sadly, the collectivist that he is, he can never recognise this.
Good point. Only the purchaser of an IPO has financed the business he has bought into. Everyone else is a speculator. Or at least the person who buys and sells is a speculator, profiting only when he has found a greater fool.
I like to buy and hold. Nice safe outfits with a long track record, who spin off more or less dependable dividends. So maybe I do fit some definition of the word ‘speculator’.
Let’s see whether there are more definitions. Suppose you can make a pile of cash shorting some major market. And suppose you can magnify the effect of your short by doing so naked, on some ridiculous margin? Your billion dollars’ worth of threats can crash into a medium-sized real estate market, for instance, and throw it so far out of whack that it fails. Not through any internal instability, so much as through all the players turning around and saying “Whoa! Some really serious money’s betting against this dog. Maybe they know something I don’t know.”
What you did was to feint, after making bets that the crowd would then turn their heads. In a game with no rules, I suppose that’s legal. But I wouldn’t want to play in a market where such things were considered fair. I’d call such people speculators in some very pejorative sense. Or I’d use words less suitable in polite society.
This kind of thing points to the need for some arbiter, some line judge from outside the game. If the USG hasn’t done a very admirable job historically, that doesn’t obviate the need to have SOMEone acting in our best interest. Because once nothing is safe from the riverboat gamblers, people will stop putting their money into any market. And then we all lose.
You see? Preventing asset prices from falling is easy!
All you have to do is leak an impending piece of really bad news through the back door (say, a sudden currency devaluation) and use your extensive network of SMERSH agents to make a list of everyone who forwards the information to their friends and colleagues. Then you cancel the planned change, deny that there was ever any such plan, and arrest everyone who spread the news. Well, not everyone – only your political enemies and business rivals. Pretty soon people will get the idea, we may Euro trash but you better not screw around with our debt!
Smart people, the French. I expect they’re really gonna start to go places, soon.
I haven’t heard in the media ( of course) but isn’t Germany in the process of monetizing debt , and will that not lead to USA monetizing debt? The race to the bottom? And wouldn’t 13 week T-bills be the last instrument to default?
Bala,
Your closing comment, “Sadly, the collectivist that he is, he can never recognise this.”, seems like a harsh judgment to me. Perhaps there is a little wiggle room in your statement. If you basing your conclusion on the presumed fact that michael is a aligned with the ‘the collective’, I think you will have to agree that there has been the rare case of a collectivist who has morphed into a most vocal individualist. I can see no obvious impediment to that happening with michael, given the right circumstances. Your statement, as written, may simply be a reflection of the frustration you feel when trying, and failing, to get another to see the same reality as you do.
On the other hand, if you are personally acquainted with him, and having no such information myself, I might then accept your call. I don’t share that opinion based no what little I have read that he has written. I would opine if forced, on the evidence I have seen so far, that michael is an intelligent, sincerely caring, and thoughtful person. We may well have some differences of opinion, but that is a characteristic that I seem to share with everyone I’ve ever met. I think I could share a life boat with him, if necessary.
May your new venture be blessed with good fortune.
Cordially,
Don
Actually, he owned up to being one on another thread. I too would like to see a collectivist transforming into an individualist but beyond a certain stage, it is impossible for people to make that switch. It calls for questioning everything that one has grown up believing. In michael’s case, I am afraid his statements indicate that he has gone way past that stage.
And thanks for the good wishes. I am going to need a lot of them
Neither collectivist nor individualist. To every thing there is a season. We can neither submerge our identities completely into the Hive and be satisfied, nor can we pretend we have no existence other than as an utterly free spirit. We each live on earth, and that implies community. Money, in fact, implies community. Because we all give it life, after our fashion.
I look at life on this planet as kids on a playground. Some of them go along with whatever the others want. Some are troublemakers. And some of the most obnoxious are the knowitalls. Who am I? I’m just the guy offering that you may not actually hold exclusive rights to The Truth. Others among us have other truths to uphold– and after all, you are still in an extreme minority.
So if you can demonstrate that I’m full of crap I invite you to do so. I would really like to be trounced by some superior argument. Then I’d have that conclusion under my belt too. My belief system is very provisional, until something better comes along.
BTW, Donald? Very sportsmanlike. You’re a gentleman. If we’re ever in a lifeboat I’ll hand you a paddle. Then we can each paddle, one to the right and one to the left.
” So if you can demonstrate that I’m full of crap I invite you to do so. ”
That’s not very difficult, really. Just take a look at the “collectivism vs individualism” sentences at the beginning of this post. While you have not even attempted to define the concepts you are talking of (that being the lesser error), you have completely distorted the meaning of both concepts in order to suit your argument.
Not that I think wikipedia is the absolute last word on this issue, but here is something from there
http://en.wikipedia.org/wiki/Collectivism
http://en.wikipedia.org/wiki/Individualism
Here’s a little extract.
“Collectivism is a term used to describe any moral, political, or social outlook, that emphasizes the interdependence of every human in some collective group and the priority of group goals over individual goals. Collectivists focus on community and society, and seek to give priority to group rights over individual rights.”
“Individualism is the moral stance, political philosophy, ideology, or social outlook that stresses “the moral worth of the individual”.[1] Individualists promote the exercise of one’s goals and desires and so independence and self-reliance[2] while opposing most external interference upon one’s own interests, whether by society, or any other group or institution.
Individualism makes the individual its focus[1] and so it starts “with the fundamental premise that the human individual is of primary importance in the struggle for liberation.” Natural rights and freedom are the substance of these theories. Classical liberalism (including libertarianism), existentialism and individualist anarchism are examples of movements that take the human individual as a central unit of analysis.”
The primary issue in the collectivism vs individualism debate is whether the interests of the collective (whatever that may mean) may take priority over the interests and rights of the individual. The very fact that you say “To everything there is a season” in this context shows that you are full of crap. It only means that when it suits you, you are ready to engage in human sacrifice. What’s worse is that you use the “interests of society” as a shield to give moral legitimacy to your criminal actions.
” We can neither submerge our identities completely into the Hive and be satisfied, nor can we pretend we have no existence other than as an utterly free spirit. ”
The way you have made a caricature of the real argument is more evidence that you are full of crap. It is neither about submerging our identity nor about having an existence other than as an utterly free spirit. It boils down to questions like when push comes to shove, do the interests of the collective take priority over the interests and rights of the individual or is it the other way around?
All this is apart from the point that there is no way to define the “interests of the collective” as distinct from the interests of the individuals who form the group that you call the collective.
“Just take a look at the “collectivism vs individualism” sentences at the beginning of this post. While you have not even attempted to define the concepts you are talking of (that being the lesser error), you have completely distorted the meaning of both concepts in order to suit your argument.”
I went into some very specific detail to inform you why I considered myself neither a ‘collectivist’ nor an ‘individualist’. If you feel I must use someone else’s definitions to describe my own philosophy, I think you make a very basic error.
Go back and read what I said. It says what I mean.
But let’s examine your preferred definitions. Here’s the ‘collectivist’: “Collectivism is a term used to describe any moral, political, or social outlook, that emphasizes the interdependence of every human in some collective group and the priority of group goals over individual goals. Collectivists focus on community and society, and seek to give priority to group rights over individual rights.”
I would ascribe to that, other than the part where group goals enjoy a priority over individual goals. Which goals take priority are a contextual question. It’s like when you organize a volunteer fire department. If you don’t want to contribute either time or money to the department, you don’t get a little decal for your front door that says you have a right to have your fire put out. You have free choice in that matter, whether to go it on your own or internalize the interests of the group.
Here’s the other side of your artificial divide: “Individualism is the moral stance, political philosophy, ideology, or social outlook that stresses “the moral worth of the individual”. Individualists promote the exercise of one’s goals and desires and so independence and self-reliance…” I’m good with that so far.
“…while opposing most external interference upon one’s own interests, whether by society, or any other group or institution. Individualism makes the individual its focus and so it starts “with the fundamental premise that the human individual is of primary importance in the struggle for liberation.” Natural rights and freedom are the substance of these theories. Classical liberalism (including libertarianism), existentialism and individualist anarchism are examples of movements that take the human individual as a central unit of analysis.”
No. I disagree. Human beings are social animals and prosper most naturally when we don’t just huddle in our individual caves, defending the entrance against all comers. You’re asking me to take a big step backwards in evolution.
“All this is apart from the point that there is no way to define the “interests of the collective” as distinct from the interests of the individuals who form the group that you call the collective.”
The statement is tied up in semantic tangles. If you’re not happy with your ability to make your voice heard in town meetings (that’s where members of the community define and discuss their interests), announce to one and all that you’re going to take all your stuff and go out into the woods, from whence you plan to live alone and ask nothing of anyone. As you plan to spin your own clothing and bake your own bread, don’t bother to bring any of their dollars with you.
It’s all a trade-off. I would urge you, if you feel you’re not getting a good deal out of the social bargain, to start up your own little community of one, and practise a brand of individualism more rugged than any I’m willing to entertain.
” If you feel I must use someone else’s definitions to describe my own philosophy, I think you make a very basic error. ”
No. I think you should use a valid definition. For more about definitions, refer to the link below.
http://aynrandlexicon.com/lexicon/definitions.html
” No. I disagree. Human beings are social animals and prosper most naturally when we don’t just huddle in our individual caves, defending the entrance against all comers. ”
This is plain stupid or more distortion to suit your position. None of the aspects of the definition of individualism that I showed mean huddling in our individual caves and defending the entrance against all comers. To say so requires you to suspend your mind. Looks like you have lost it.
” The statement is tied up in semantic tangles. ”
Please show the semantic tangles. So far, you have abstained from doing so.
” f you’re not happy with your ability to make your voice heard in town meetings (that’s where members of the community define and discuss their interests), ”
What do I say to THIS????? You defy the imagination. Now, I really am scared to think that most people are actually like you and think like you do.
Bala– Now you’re just being difficult. First, I provided my own definition, next I used your definition. In both cases I described my position fully and clearly. Apparently nothing will satisfy you.
So now I should look up and describe myself and my positions using Ayn Rand’s definition? Am I supposed to be your errand boy, running around the web looking for definitions I don’t fit? Her definitions do not apply. You know who I am and what I stand for.
” You know who I am and what I stand for. ”
Yup! I do. You are and stand for a truckload of crap. At least, that’s what you are full of. You seem incapable of realising that the link I gave was on the very concept “definition”. I was trying to tell you that there is no such thing as “your definition” and “my definition” but just “the definition” of each concept. The first step in understanding anything is defining it first.
For instance, if one were to take the term “inflation”, it correctly refers to an increase in the money supply (including money proper, money substitutes and fiduciary media). That you choose to “define” it as “increase in the general level of prices” does not change the definition. If, however, you insist on having a discussion based on your preferred “definition”, there is no way to have a meaningful discussion. When I dismiss the conclusions you draw based on your “definition”, I do so by dismissing your “definition” as incorrect in the first place. There is such a thing as a proper “definition”, you see.
Bala: This is a very basic place where you go off the tracks:
“You seem incapable of realising that the link I gave was on the very concept “definition”. I was trying to tell you that there is no such thing as “your definition” and “my definition” but just “the definition” of each concept. The first step in understanding anything is defining it first.
“For instance, if one were to take the term “inflation”, it correctly refers to an increase in the money supply (including money proper, money substitutes and fiduciary media). That you choose to “define” it as “increase in the general level of prices” does not change the definition. If, however, you insist on having a discussion based on your preferred “definition”, there is no way to have a meaningful discussion. When I dismiss the conclusions you draw based on your “definition”, I do so by dismissing your “definition” as incorrect in the first place. There is such a thing as a proper “definition”, you see.”
Just not the case. This is the kind of thing that happens when you only talk to people within the cult. Your definition excludes the standard one in use by the rest of the English-speaking world.
From Wikipedia:
“In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time. When the price level rises, each unit of currency buys fewer goods and services; consequently, annual inflation is also an erosion in the purchasing power of money – a loss of real value in the internal medium of exchange and unit of account in the economy. A chief measure of price inflation is the inflation rate, the annualized percentage change in a general price index (normally the Consumer Price Index) over time.”
They do allow that “High rates of inflation and hyperinflation can be caused by an excessive growth of the money supply.” Note use of the word “can”.
Don’t like Wikipedia? Here’s the definition from Investopedia:
“The rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling. Central banks attempt to stop severe inflation, along with severe deflation, in an attempt to keep the excessive growth of prices to a minimum.”
Try Webster’s. Funk & Wagnalls. Here it is from InvestorWords:
“The overall general upward price movement of goods and services in an economy, usually as measured by the Consumer Price Index and the Producer Price Index. Over time, as the cost of goods and services increase, the value of a dollar is going to fall because a person won’t be able to purchase as much with that dollar as he/she previously could. While the annual rate of inflation has fluctuated greatly over the last half century, ranging from nearly zero inflation to 23% inflation, the Fed actively tries to maintain a specific rate of inflation, which is usually 2-3% but can vary depending on circumstances. opposite of deflation.”
The definition is always the same. Except in this little universe.
<ichael, no one who promotes individualism believes that humans don't operate together in community. It is a bit of a strawman when many great individualists talk about concepts like the "invisible hand" which brings us together through independent goals to creating diverse and complex crafts that none of us could perform alone.
The difference between individualists and collectivists is that individualists believe that the best goals are achieved together when people agree to them on their own and promote them because they believe they profit from those goals. Collectivists believe in promoting goals and the ignorant masses be damned.
It's not unfair to call you a collectivist honestly. You are hardly shy to stand up for government interventions in transactions that individuals agree are mutually beneficial (minimum wages) because you believe societal goals are more important than either of the 2 individuals. You also demand proof that government imposing these goals on people is causing problems, when the impetus should be on you to prove that it is not since you support the use of this force.
I should provide a clarification on the last remark to be fair. Collectivists believe that the ignorant masses should be forced to do what they want. Some of them obviously do think they should be “damned” if they disagree (Stalin, Mao, etc.) but I am not saying that you want ill for people. I am saying that the way you promote good is a bit haughty.
You want people to prove things to you but the problem with your positions is that when things are done that way it pushes other people around and doesn’t listen to them or their concerns or desires. So if you are wrong, government screws people over, and if you are right, it is doing good for them against their will. I suppose the latter is still doing good, but only if you are right, and so I think you should be much more concerned with proving that than making us prove what we say.
I know that may sound unfair but it’s the responsibility of having a position of being for government force. I’m a libertarian for a reason, and to me the principles are very important. Utilitarians should have to prove the advantages of their proposals is absolutely real, and they have done very far from that in my opinion. On the contrary, I think they have hurt things, and I think the bad course we have taken is due to a myriad of ills performed by those who wanted to make things better.
“..no one who promotes individualism believes that humans don’t operate together in community.”
Bala, with whom I was having this conversation, appears to believe exactly that. And I imagine you don’t. It has been noted that individualists don’t all think the same way, so I’ll address the issues you raise now.
1. “The difference between individualists and collectivists is that individualists believe that the best goals are achieved together when people agree to them on their own and promote them because they believe they profit from those goals.”
Let’s call them ‘people’, neither ‘individualists’ nor ‘collectivists’… to denote those among us who feel this way. We each prefer a situation where we have some say in how we are to be governed. That’s why we set this country up as a Democracy, so the people could speak. And so that our government itself could be one “of the People, by the people and for the People”.
That’s what we used to think we had, back when we all lived in, worked in and contributed toward, a democracy. Of course now that’s no longer the form of government we enjoy. According to the new wording adopted by the Texas School Board in their current line of history and civics texts for kids, we live under something called a ‘Constitutional republic’. In other words, nothing there for a kid to understand innately and to believe stood directly for his interests.
2. “Collectivists believe in promoting goals and the ignorant masses be damned.”
No, you use the wrong word. What you describe is totalitarianism. And I think you will find few people in American life today who really embody totalitarian goals. You’re framing a debate so that one of the choices is obviously evil, without a redeeming feature.
Most of us hold beliefs that we think uphold America’s best interests. Even you, even me. Also there are those of us who are crooks and scoundrels. They’re the ones who pray the loudest in church, and uphold lots of sovereign values.
You then go on to add that I’m not quite as bad as all the other collectivists. I guess that would make me some kind of fellow traveler, or maybe an ‘unwitting dupe’.
We’ve been around this block before. All these arguments were made back in the teens, twenties and thirties, without anything important ever being resolved by the American public. And to a great extent they’re all immaterial.
What’s material and important is your idea that any societal use of force is bad. All I can say is that I hope you will live to have the experience some day of being in a society that has abdicated the use of force and left all behavior to be optional, at the pleasure of the individual.
And I hope that that society is not the one I now live in. Because I don’t like having to stay up all night every night with a shotgun, hoping the neighbors don’t come in the dark with two or three shotguns.
” Bala, with whom I was having this conversation, appears to believe exactly that. ”
Nonsense. Learn to read.
” My belief system is very provisional, until something better comes along. ”
Ha! Ha! Ha! How typical of a collectivist!!! Just saw this additional example of being full of crap.
Hey Michael is back. I’ll try to reply but forgive me if I don’t
Thanks for coming back to continue the discussion either way!
Excellent of you to say so! I’d love to join you some time in a joust or a parry. You can define the terms of debate.
North, I don’t know if speculators are ‘always’ doing good? But I can agree with your view of boom and bust – a boom MUST lead to a bust because markets can not only go one way. But as I think cheap money leads to unnecessary risk taking which may lead to an overreaction of these cycles and make the consequences much worse. Unfortunately these days not only for speculators. And sure not the speculation is to blame, but maybe the speculator because he is the ‘moral authority’.
I thought one of the principles of a free society with free markets is responsibility and therefore not harming deliberately other people. In the case of Greece speculators are deliberately accepting the consequences of harming other people. In that case taxpayers from creditor nations which have to pay the bill at the end of the boom. Of course one can argue that this is not the speculators problem and of course one has to blame in the first place the government. But one can also say: In for a penny, in for a pound!
It is no excuse for the speculator that governments do wrong in the first place, so they can do wrong as well. Or is it? The moral hazard makes it easy for them I guess.
Hi David, it really depends on how you define good and bad.
Other people thinking of great business plans and following through on them is bad for me if I wanted to get rich doing the same but never got around to doing it (i.e. they beat me to the punch which is bad for me). People applying for the same job that I want and getting the position over me is bad for me.
But in a free society requires that no one commits an act of aggression toward another person or their property. Two people betting on a baseball game with one winning at the end of the game and the other losing at the end of the games does not constitute an act of aggression. In a free society this is all ok and permitted.
The important take aways is that speculators are not causing any of the negative effects you are seeing in the economy. The are not causing Greece to go under, they didn’t cause this recession we’re in now.
Moreimportantly is that they are not making things worse. This is crucial to communicate to others as well. It is the magnitude of the monetary inflation through the credit markets that causes a bad situation to get worse (also how long the inflation goes on for because the long it goes on the more pumping of money is needed to keep it going and the harder the fall at the end of it all).
Media and many economists and non-economists alike blame speculators for the magnitude of the problem (they think it would have been smaller without them) but this is not the case.
If we can agree that they don’t make things worse or cause the ups and downs (they are merely spectators or passengers along for the ride), then there is only one last area to analyse (and perhaps we might not agree on the preceding point but that’s okay; I suspect Micheal will disagree here but I don’t want to speak for him).
If they are not causing problems or making them worse then we only have to look now to perceived value from those involved in the transactions. In this case, both parties agree to a bet and were willing to suffer the consequences of being wrong, but were also willing to accept the reward of being right (this is entrepreneurialism at it’s finest). If both parties agreed to a contract that they both wanted to get into, they both gained. The gain is obviously not in a monetary sense but having their need for that particular contract fulfilled.
If we go back to that insurance example I think this will clear up the last part of things.
Party A wants to cover their assets. They bought a lot of stocks and if the market drops the lose big time. So the buy some shorts as insurance off of party B.
Party B gains in that he gets a source if income. He can sell shorts throughout the entire boom and never lose a dime. Part A on the other hand loses his insurance purchase so long as the market climb or remains steady. But both have a need fulfilled by the other (this was their strategy to reduce risk or try to make money).
I would never enter a contract with someone who was out to hurt me. And if it was possible to identify people out to harm others by the types of contracts they engage in (naked short selling for example) then no one would ever want to be ‘party B’.
I’ll preempt an objection that others may bring up to this (I’m assuming based on your past responses that if you, David, disagree it will be with my earlier point and not the latter one). If someone refutes this point by talking about “social costs” please don’t unless you are able to demonstrate how you can calculate “social value” while accounting for the fact that value and costs are subjective.
Sorry again, I should really add one more point.
This all assumes that these speculators are not committing fraud or violating contracts. If this is the case they are committing crimes. No new laws are needed to arrest people for fraud and we already have courts in place to deal with breach of contracts and other such issues.
I didn’t add this earlier but it’s worth pointing out. I seem to recall some shady business practices that amount to fraud. Fraud requires no regulation, it’s already verboten
Probably we should first define what a speculator is.
). The person in your example who buys an insurance and hedges this insurance is not a speculator, but just a very very careful member of society who wants to protect his wealth.
A person who buys a house in the peak of the housing boom to own a home is not a speculator. He buys this house to have a shelter (it’s for his own purposes).
A homebuyer who buys at the peak of the housing bubble a house, in anticipation the value of the house will rise further to finance new goods and services or other risky investments is a SPECULATOR.
A person who takes out a life insurence is clearly not a speculator (there is nothing to speculate about death, because there is always only one winner
A person who bets with another person on a game is a SPECULATOR. A person who bets on life insurances, that the insurances will default, is a SPECULATOR.
I determine a SPECULATOR as a person who takes deliberately a certain risk (high leverage) in a (short term?) investment and hopes to get more money out of it. With his speculation he will not provide any productive value to anyone else, nor does he invest to PROTECT his wealth. He just wants to make money in the short run by analyzing a market and hoping it turns out as he predicts. By the way, this shows that speculation got much easier with government intervention, because government actions are much easier to predict than free markets. At this point I need to mention that it is fine for me if someone wants to make a bet (to speculate) with his own money. There is nothing wrong with that.
Anybody who invests in shares, insurances, homes, bonds and so forth is not necessarily a SPECULATOR, nor an INVESTOR.
If you have a different view about what a speculators is, please tell me. But when I read your post I think to you is almost everybody a speculator, which has certainly its justification.
To your Article:
Is a person applying for the same job as you deliberately harm you? No, because you have the same chances. And if you apply for a new job you can only win. If you go out of business because a competitor is better then you does he harm you deliberately? No, because there is always enough room for other competitors in a free market society and he can not be blamed for your faults.
We live in a free market and there are job losses, bankruptcy and so forth, but there are as well other chances, opportunities and much more.
I do AGREE that speculators are not to blame for Greece, nor for the recession. Do they make things worse? Yes I think they can, but they don’t have to. Do they have any effect on the ups and downs? Yes I think they can, but they don’t have necessarily.
I remind you at LTCM (Hedge Fund). It had to be bailed out. Was this not a speculative hedge fund and did harm the entire economy? And explain people who lost their jobs because of an ‘investor’ bought a competitor to close it down to eliminate competition. Or an ‘investor’ who bought a company to close it down only to own the brand and then letting the goods manufacturing (let’s say) in China to make more profit?
These are decisions which will never been made by a real entrepreneur. Such decisions can only be made by short term speculators looking for short term money. An ENTREPRENEUR will look for sustainable groth, wealth and protection in the long run.
I’m sorry, but for me it is not possible to say that speculators NEVER EVER do bad things, never harm the economy or making things worse.
But again, I agree on the keynote of your statements and that of the article. And I completely understand your position.
I just wish that the article would not only praise speculators without any doubts, letting the reader think that speculators are like angles to the economy. By the way, the article is a theoretical oversimplification and that’s the reason I only agree on the keynote.
Inflation is caused by government and by corporations.
Governments create fiat money.
But corporations create fiat assets in their balance sheets through their right to classify an intangible like goodwill and brands as an asset.
An individual is not allowed to borrow using as collateral their calculation of the future earning value of their knowledge.
Corporations, on the other hand, are allowed to borrow money using as collateral their calculation of the future earning value of the knowledge of their employees.
If corporations are allowed to do that, why aren’t individuals?
And if individuals are not allowed to do that, why are corporations?
Comments on this entry are closed.