Let's Blame Speculators

Townhall.com ^ | May 4, 2011 | Walter E. Williams

[Buckeye McFrog]

Speculators are a target of great political convenience for the Administration. In one fell swoop they can puncture the bubble and bring down gas prices, allowing Obama to become a hero, AND convince wide swaths of the American people that Unregulated Grrrrreedy Capitalists are the problem and more regulation from Democrats is the solution.

[SunkenCiv]

Thanks sickoflibs.

[RVN Airplane Driver]

This fool in the WH and his tit sucking advisors don’t have a clue who our system works... Surprised...zero and his minions only understand the marxist view...but of course what do you expect from a muslim stooge...

[supercat]

Some speculators who buy low and sell high stabilize the market, and are rewarded for doing so.

Other speculators end up buying high and selling low, but cover their losses themselves. The action of speculators will destabilize the market somewhat, but they'll be punished for doing so; the harm they do to themselves will usually exceed the harm they do to the market. Further, the need to avoid severe losses will often discourage investment in apparent bubbles.

Unfortunately, in some markets, some speculators are allowed to buy high and sell low without having to cover all losses themselves. Such speculators are doubly evil--they disrupt what would otherwise be sane markets, and they steal money from whoever ends up having to eat the losses they can't cover themselves. Nonetheless, if speculators have a reasonable expectation of being able to evade responsibility for their losses, it may be in their own selfish interest to invest in bubbles, since the gains by those who guess the timing right may exceed the losses by those who don't (other parties will get stuck absorbing the losses the speculators can't cover, but the speculators have no reason to care).

Markets where people are allowed to speculate without having to cover their own losses are unstable. Unfortunately, the government doesn't seem interested in ensuring fixing the dangers inherent in such markets.