Monday, September 22, 2008

STOCK MARKET GAMING: I'M LIKE JOHN MCCAIN - I DON'T GET IT

As the U.S. financial crisis rolls on, we're doing two things: 1) keeping our fingers crossed that we don't lose our shorts, and 2) trying to figure out what the heck is going on. I read a lot of articles in the business sections of newspapers, and also columns by various "experts" and those who are "not-so-expert-but-with-an-opinion." I understand some of the basics of what's happening; but I also understand that the stock market, and the investment industry in general, is really legalized gambling.

Here are some example, ripped from the business section of the New York Times today:

" Short-selling has been blamed by banking executives for contributing to the decline in financial stocks...." So, what is short-selling? " Short-sellers borrow shares of companies' stocks and sell them, hoping to later repurchase them at lower prices and profit from the spread." So part of the federal strategy to fix the crisis is a temporary ban on short sales of 800 financial stocks.

"The shorting rule on Friday made it more expensive to purchase put options on stocks, which are bets that the stock's price will fall." Hmmm...kind of like a game of blackjack....

"Some of the investing strategies that are in flux because of the rule changes include index futures arbitrage [?] and merger arbitrage [?]. For instance, traders who want to make a bet on whether the merger involving the Bank of America and Merrill Lynch will go through will not be able to use short-selling this week to do so." Kind of like picking horses at the race track, I guess.

Finally, the Chief Investment Officer of a "giant bond firm" said of the federal plan: "This is a revolutionary move where we now expect and the market expects a transformation of wild, wild west capitalism to hopefully the benevolent fist of government."

Now, let me be clear here; I understand that nobody is forcing me to invest money in stocks and bonds - my wife and I could simply keep all of our cash under the mattress. But we've been told that our money is secure in banks, and insured up to $100,000 - great, but what if we have more than that? We understand that investing in the market has risks; fine. What bothers us is that the investment markets seem to be ruled by a bunch of high-stakes gamblers who are largely unregulated and whose greed for personal wealth overrides any concerns for the regular folks like us who trust them with our hard-earned money.

It bothers me when I get to an understanding that the investment industry is legalized gambling with little or no oversight. It bothers me when an industry leader says that government regulation is a "revolutionary move."

So yes, like John McCain, I don't really understand economics. But unlike John McCain, I want to end the big tax breaks for the guys and gals of Wall Street who make huge profits by gambling with my money, and I do want government to be Big Brother with eyes on Wall Street making sure that the investment and banking and insurance industries are playing by a set of rules that protect my investments in their poker party.

1 comment:

Tiffany said...

I have several comments on this. One: isn't one of the principle of the capitalist society that the better companies rise to the top and the companies that fail, fail (kinda like natural selection)?

Two: Instead of bailing companies out - why not reward the people who were careful with their money and who pay their mortgage on time?

Three: It heartens me to see the government act with such swiftness. So why do they always balk that universal health would be "too complicated" when clearly government can act quickly and decisively when the need too?

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