Jungle Ethics Financialism vs. Free Market Capitalism

Proposals for adequate regulation and enforcement in the financial markets often run into objections from advocates of free-market capitalism. Like any discussion that involves “isms,” a lot of confusion and hard feelings can be generated by a failure to examine the assumptions and preconceptions that cluster around the central conception. We need a definition. For the sake of clarity, I will first detour into a discussion of what this form of capitalism is not, describing its antithesis – jungle-ethics financialism.

Financialism is an economic system where the primary activity consists of creating and manipulating financial instruments. Financial instruments – loans, mortgages, stocks, bonds, etc. - are in their original form firmly linked to economic reality: the mortgage finances home ownership; the stock certificate represents ownership of a company that owns physical assets, the bond secures debt incurred to build a factory.

However, when financialism sets in, financial instruments become progressively further removed from their role in supporting commerce in the real world and develop a life of their own, a weird shadow dimension, a hall of mirrors, a distorted alternate reality that intersects and reacts with the real economy in unpredictable and destructive ways. George Soros described this phenomenon as “reflexivity." Derivatives have a lot to do with it. Leverage and the abuse of easy credit are contributing causes. The shadow banking system is a symptom.

Jungle-ethics – does not require definition, but needs to be distinguished from the free-market concept necessary to the proper functioning of the capitalist paradigm. A system which exalts the most capable financial predator as its highest member will suffer periodic booms and busts – the prey, honest people who work and save and try to invest, become too few and too weak to sustain the predators above them on the feeding chain.

Capitalism – politically I am a Democrat, but discussions of Jack Kemp's legacy have included his mantra: work, save, invest. That is an excellent short-form description of capitalism as we understand it: the fruits of thrift and industry are accumulated and invested in the creation of additional means of production, thereby generating wealth. Free market capitalism relies on the laws of supply and demand to allocate capital to its most productive uses.

The onset of Financialism - Some early manifestations are less objectionable: an example would be the practice of borrowing money in order to repurchase shares. This has the effect of increasing EPS, but does not create any new value: it is simply financial engineering by management that does not have the creativity to develop new products, compete aggressively, or expand into adjacent businesses. The market finds this infinitely preferable to other uses of cash flow such as capex or R&D.

But the terminal stages involve increasing complexity and ultimately circumvent the laws of supply and demand. Consider the phenomenon of synthetic bonds or CDOs, where instead of getting genuine collateral such as mortgages or loans, the buyer becomes a seller of CDS protection. The rationale is that the swap payments mimic the cash flow of the referenced bonds, but at a lower cost because it is not necessary to do the tedious work and actually locate and purchase genuine bonds. In point of fact it is a counterfeit security, increasing the apparent supply of whatever type of credit buyers are most eager to purchase, or sellers to unload on the unwary.

Futures, originally conceived as a hedging mechanism and a source of stability in the market, become problematic when the transactions become entirely divorced from any intention of receiving or delivering the underlying commodity: instead, they are means of speculation. Legitimate market participants, whose business activities involve buying, selling or processing the commodity, are exposed to risk of loss due to market manipulation, rather than being protected from fluctuations caused by the operation of the laws of supply and demand.

Late Stage Financialism - In the final degenerate phase, the elect in the inner circle of darkness of the financial oligopoly report huge earnings by virtue of buying CDS protection on each other and then pumping up the premiums while conniving to create liquidity or solvency crises. Simple folk such as Bill Gross, who noted, with impeccable logic, that this is a zero sum game and that the system would be destabilized when the loser got voted off the island, were disregarded.

Warren Buffett noted that both sides of a trade can claim a profit and that it can take years for the loser to admit defeat. That was after he famously described derivatives as financial weapons of mass destruction. Of course Warren lost his credibility when he himself sold derivative protection, some sort of long term bet on the S&P 500. There has been much speculation about why he did that: my best guess is that he was old enough to know better but too young to resist. Such is the lure, the insidious power of Financialism, even that model capitalist, our beloved hero Buffett has been ensnared in the web of evil.

We the public and individual investors sit forlornly outside while the great ones meet in solemn conclave to devise a way to keep the dark religion inviolate: a new structure, pyramidal in shape, with an immense eye at the apex: within is a larger hall of mirrors, shrouded in a deeper haze of smoke, more obfuscation, more obscurity, presided over by a mysterious wizard of systemic risk, who will emerge from behind the curtain to show us what used to be a fruited plain but is now an arid expanse of desert, relieved here and there by the odd green shoot wilting under the hot sun of reality, with a purple mountain majesty shimmering in the distance, unreachable and remote.

Financialism - that's what created the problems we have in the US economy today. If you can coin a better umbrella term to describe it, let me know. It is not capitalism.

Wild-west ethics is an alternative version – in this variant, the financial hero is a gunslinger, like Wild Bill Hickock.

Hickock was something of a card sharp: he loved it when somebody cheated at a game of poker because he would catch them, spring to his feet, pull out his six gun, and confiscate all the money on the table as compensation for the crime committed. He was judge, jury and executioner, a plaintiff who always won his case.

A wary fellow, Hickock glided down the street, lvigilant, knowing that at any moment some would-be gunslinger hero could bushwhack him and claim the title of fastest gun in the West. One day, playing poker in a mining camp saloon, he departed from his usual practice of sitting with his back to the wall. A cross-eyed coward by the name of McCall crept up behind him and shot him through the back of the head. Hickock died, holding aces and eights, the dead man's hand.

McCall was tried twice: the first trial, hastily conducted in the mining camp where his crime was committed, was a circus, with a jury that had been generously bribed with gold dust, and he was found innocent. A second trial in a different venue resulted in a conviction: he was hanged by the neck until dead.

But our sophisticated modern economy cannot be compared to a mining camp, the reader protests. Perhaps it can. In the mining camp, nothing of value is produced, it is all brought in from outside. Sounds sort of vaguely familiar, I can't quite place it, it will come back to me. There is gold all over, in the streams, in the hills, under the mountains: a horde of gold diggers descend on the area, stake claims, and fight over territory. They bring the gold into camp, where it is taken from them and redistributed, so much to the gin mill, so much to the saloon, so much to the gambling hall, so much to the dance hall, so much to the bordello, a little bit to the general store, on credit.

In the end it makes its way to a back room in the largest and fanciest saloon in the camp, where the high rollers and heavy hitters play a game of Texas hold'em and the winner takes all. Maybe there is no direct parallel, or maybe there is some sort of resemblance to what goes on here in the US of A. Is there any possible resemblance between Hank Paulson's handling of AIG and Wild Bill's tactics at the poker table? Certainly AIG was bluffing if not outright cheating. Paulson was armed with a bazooka, not a six gun.

How many of our financial gunslingers are holding aces and eights? There is no way to know, they all hold their cards very close to the vest. But the rules of the game are, there are no rules and they just changed anyway, drill the other guy from behind and grab what's on the table. And it is very hard to tell the lawmen from the crooks and the card sharks and the river boat gamblers, they all play the same game, it makes perfect sense to them. And the cowardly McCall is never brought to justice.

The Consequences - Jungle-ethics or wild-west financialism results in a situation were capital that should be used to create additional means of production is diverted into gaming the system: when it becomes the spoils of a rigged card game played by cheats and scoundrels: when financial instruments become divorced from economic reality; when excessive leverage creates precarious and unstable structures; when financial predators feed off the fruits of thrift and industry, destroying value.

Necessity of Regulation – ideally, regulation protects free-market capitalism from its antithesis, described above. As such, it is absolutely necessary to the proper functioning of the system. Appropriate regulation is prudential in nature, preventing market participants from endangering or gaming the system. It does not interfere with the operation of the laws of supply and demand: to the contrary, it prevents unethical market participants from manipulating supply and demand in ways that harm others.

A Failure of Regulation – the current financial crisis was caused by a massive failure of the entire regulatory system. Rather than assigning blame to individuals, political parties, or financial institutions, this discussion moves on to the central issue, the need for an informed, politically active group of individual investors to force Congress to 1) enact appropriate corrective legislation and 2) regulate the regulators. Ultimately, we as citizens and investors have stood by while speculators and manipulators ran amok. Our duly elected congressional servants, lacking explicit instruction from us, participated in the process. Perhaps we attempted to participate ourselves, small time predators in a treacherous jungle. Now we must insist on change.

Regulatory reform - A consensus is growing in support of regulatory reform. It's a given: the questions now revolve around the process, who will chair the commission, who will gain or lose turf, how stringent will regulation be, will any segment of the financial industry escape close supervision?

Defining the Agenda – broadly speaking, what needs to be done is to end the era of jungle-ethics financialism. It is important that turf wars and power grabs be excluded from the agenda. If properly done, the findings of a Committee to Investigate the Disaster will result in recommendations such as, but not limited to, the following:

1. All existing classes of financial instruments and products need to be reviewed, to determine whether they serve any useful purpose in supporting the functions of the real economy. Does the instrument in question facilitate working, saving and investing? Is it directly related to the real economy? Does it create systemic risk? Can it be perverted into gambling or speculation, gaming the system?

   1. Credit Default Swaps

      • Those supported by insurable interest

      • Naked CDS

   2. Interest Rate Swaps

      • Those that perform necessary hedging functions for individuals or institutions whose primary business operations expose them to interest rate fluctuations

      • Those that are speculative in nature

   3. Futures

      • Legitimate hedging by enterprises exposed to loss due to price changes in the commodity involved

      • Speculative transactions aimed at cornering the market, such as occurred during 2008, destabilizing the cost of crude oil and gasoline, exacerbating the economic crisis

   4. Synthetic bonds and CDOs, creating fictitious excess supply of bonds, replicating and multiplying losses, offering endless opportunities to finagle and arbitrage

   5. Leveraged ETFs, fundamentally dishonest products that destabilize the markets and encourage gambling on market direction

   6. Securities lending, AIG got themselves in trouble doing this

2. Transactions must be subject to continuous review, to ensure that they relate to the real economy, that they are not manipulative in nature.

   1. Naked CDS, logically these are naked short sales of bonds, and can be used to drive bond prices down or yields up, creating an unwarranted suspicion that a company is in financial trouble or even creating an implosion by denying the company access to credit markets.

   2. Naked short-selling

   3. The transactions that need to be forbidden all have one thing in common: there is no underlying intention of receiving or delivering the goods – they are simply bets on the direction of the market. This was outlawed as long ago as 1907, by the bucket shop laws, but we have been unable to learn from the experience and wisdom of previous generations and yet once more gambling and speculation have created economic hardship.

   4. Excessive leverage – the natural consequence of artificially low interest rates, speculators attempt to achieve large risk-free returns by leveraging “low risk” transactions. Results have been destructive and destabilizing.

3. All financial institutions must be subject to regulation

   1. That would include Hedge Funds

   2. It would include former investment banks, whether they owe money to the USG or not

   3. It would include clearing houses such as DTCC, which contain the information necessary to monitor transactions for manipulation and systemic risk

   4. There will be no regulatory arbitrage

4. The Self-Regulatory Fiction needs to be abandoned. For too long the SEC has deferred to the concept that the markets would police themselves through organizations such as FINRA. This has demonstrably not worked and we should give up the pretense and naïve hope that it ever will work. Why pretend that the fox is guarding the hen house?

5. The SEC needs to be forced to reinvent itself as a law enforcement agency rather than a p/r apparatus. The mission is not to make investors believe the game is fair by crucifying minor celebrities such as Mark Cuban or Martha Stewart for insider trading, meanwhile ignoring a raft of specific and credible allegations against naked short-sellers, or other prime offenders such as Bernie Madoff. The mission is to quell jungle ethics.

6. Other Regulators that have become irrelevant or toothless must be restored to functionality.

Implications for Investors – If you're happy with the way things are there is no need to do anything: just tap into the easy riches created by financialism, outwit all the predators out there, lay down your cards and rake in your winnings.

If you're not happy you need to tell your Congressional representatives about it, loudly and firmly. Tell them you are not going to be distracted by a sop in the form of retaliatory taxation against AIG bonuses. Tell them they owe us an amends for their gross negligence in passing CFMA, the legislation that brought us Enron and exempted CDS from regulation. Tell them to read the GAO report on the SEC. Tell them to do something about it. Make sure it happens.

Then you will be able to work, save and invest safely.

Comments

[H. T. Love:]

Another *GREAT* article. Thanks.

I do have one comment.

"This has the effect of increasing EPS, but does not create any new value: it is simply financial engineering by management that does not have the creativity to develop new products, compete aggressively, or expand into adjacent businesses. The market finds this infinitely preferable to other uses of cash flow such as capex or R&D."

Financial engineering, which the above could be considered, *can* have constructive use, I think.

Consider that the company may pay dividends. This is cash outflow. This cash might have been more productively applied, e.g. in capex, cost reduction, employee retention efforts, etc. If shares are bought back at a relatively *low* price, the cash outflow is reduced (over the long-term), making it available for other purposes. This is going to be a long-term benefit, which is how I like to see management focused.

Another potential benefit accrues if dire circumstances arise wherein liquidation occurs. With fewer shares outstanding, return to investors is higher. The assumes that the buy-back was not a contributing factor to the crises.

What I *don't* care for at all is the seemingly widespread practice of (inadvertently?) buying back at high prices and then having to re-issue later, especially at lower prices.

Just a thought,
HardToLove

Jun 08 08:44 AM

[Graham and ...:]

Dear Tom:

Your "late stage financialism" is, unfortunately a result of three decades of nearly uninterrupted prosperity for the financial sector. We need a "speed bump" like the current one to restore finance to its rightful role as "handmaiden of commerce," not "arbiter of commerce."

Jun 08 09:29 AM

[KirbyJF1:]

Great article Tom

I think your right on & all the players that want to make investing a bigger risk than it is already should have to pay more to do any type of derivitives, (including options) ((no naked shorting of stocks or CDS )) or go play at Las Vegas Casino's.

Kirby

Jun 08 10:10 AM

[Alphameister:]

Another utopian dreamer who assumes that only the very moral and virtuous become government regulators and they will somehow have both the competence and willingness to keep those greedy evil-doers in the private sector from causing harm. I have yet to meet a Democrat who comprehends how a free-market economy would evolve to deal with incompetence and evil more effectively than any government agency, lacking the discipline of profit and loss, can hope to do so. (Unfortunately, I have also met very few Republicans able to process these issues to their logical conclusions either.)

Jun 08 11:26 AM

[Buckoux:]

Quote: "...how a free-market economy would evolve to deal with incompetence and evil more effectively than any government agency, lacking the discipline of profit and loss, can hope to do so." ...posted by
Alphameister

Please elaborate. I do agree with your opinion that both Dems and Repubs lack the ability to "process theses issues to their logical conclusions", but just what are these "logical conclusions"?

Jun 08 12:29 PM

[Leftfield:]

The best summation I've read. I would add that executive compensation does have to include multi-year payouts to offset the risks management takes, so they don't get huge bonuses now for junk that explodes/implodes later. And, we can safely assume most stock buybacks at high prices have been to inflate management stock option values.
Government, besides becoming incestuously involved with crony perpetrators, taxes virtue and subsidizes failure. This I know as a small entrepreneur who has suffered insane tenant protection laws and high taxes on property improvements above and beyond the crippling effects of doubling, tripling and quadrupling of taxes and public utilities I've suffered in short timespans.
So, don't tell me we've had low regulation or that capitalism per se is at fault. Cronies have had a field day, now we all are going to pay.
Thanks for the article.

Jun 08 12:31 PM

[Alphameister:]

I lack the time to give this topic the attention it deserves. I suggest you consider a subscription to libertarian publications such as Reason magazine or The Freeman (published by the Foundation for Economic Education) that regularly provide free-market insights into contemporary issues. In essence, libertarians believe that it is not possible to eliminate evil from the world by putting presumably good and virtuous "public servants" in control of bad and venal businessmen. Good and evil will exist in government in about the same proportion that they exist in the private sector. When it comes to competence versus incompetence, competence will be more drawn to a risky private sector that rewards it generously while incompetence will be drawn to a public sector where there is great security and merit is not a prerequisite for advancement.

Because evil and incompetence exist in the private sector, there are periodic scandals invariably used by those in government as a reason to expand their personal power while posing as heros to those too naive to understand the downside of government control. The private sector isn't given a chance to evolve corrective measures on their own.

The publication, Consumer Reports, (ironically a left-leaning group) is an example of the private sector evolving a solution to the problem of consumers not being able to sort through competing claims of businesses. A reputation for honesty and objectivity is critical to the business success of such a publication, giving the management a powerful incentive to be constantly alert to the risk of a staffer exchanging objectivity for a bribe.

Where private rating agencies fail to do their job effectively, as has been true of Moody's and S&P, it provides an entrepreneurial opportunity for new rating agencies that are more perceptive and objective. Without knowing all the facts, I'm guessing that there exist governmental barriers that have protected the turf of these sorely deficient ratings giants.

I've only scratched the surface here, but I hope I've given you at least a bit of insight into the issues and a means of expanding your understanding on a regular basis.


On Jun 08 12:29 PM Buckoux wrote:

> Quote: "...how a free-market economy would evolve to deal with incompetence
> and evil more effectively than any government agency, lacking the
> discipline of profit and loss, can hope to do so." ...posted by
>
> Alphameister
>
> Please elaborate. I do agree with your opinion that both Dems and
> Repubs lack the ability to "process theses issues to their logical
> conclusions", but just what are these "logical conclusions"?

Jun 08 01:32 PM

[ALue167:]

Great Read!
It all confirms my belief that we should socialize the financial sector as well as the healthcare and legal sectors. This would solve the problem of the thieves stealing everyones money which amounts to about $1 trillion per year. The post office is socialized and works well.
The profiteers should not rule the domain of the distribution of money.
The lawyers should earn a government salary only. The health insurance companies should be replaced by a single government insurance system for everyone like medicare..
Our future. deficit problem would be solved.

Jun 08 01:37 PM

[PainfullyAware:]

Tom - Thanks For The Effort On This Article.

I have to agree with Leftfield that the penalties imposed by Government on business have become monumental.

Simplification In All Aspects OF "Regulation" Is Now Necessary. Complexity Favors The Sinister.

I would like to see a system that has - Absolutely No Off Accounting Book Entries. Transparency Is The Bane Of The Fraudulent.

I would also Get Rid Of The Presidents Working Group On Financial Markets and Substitute the back end of "Calamity Management" by funding safety net functions and investigation and prosecution teams.

Changing The Rules To Protect The Nefarious Does No One But The Fraudulent Any Good. The current policies are all for this cause.

Jun 08 01:47 PM

[ALue167:]

PS. Eradicate the Corporate-Military Industrial complex and bring all the troops home from the 150 countries Imperial Empire Amerika is occupying including the 2 wars. Tell Israel, Taiwan, and So. Korea they are on their own. Another $Trillion saved.

Jun 08 01:52 PM

[PainfullyAware:]

On Jun 08 01:37 PM ALue wrote:

> Great Read!
> It all confirms my belief that we should socialize the financial
> sector as well as the healthcare and legal sectors. This would solve
> the problem of the thieves stealing everyones money which amounts
> to about $1 trillion per year. The post office is socialized and
> works well.
> The profiteers should not rule the domain of the distribution of
> money.
> The lawyers should earn a government salary only. The health insurance
> companies should be replaced by a single government insurance system
> for everyone like medicare..
> Our future. deficit problem would be solved.


Where Are You Getting Your Data? The Post Office Works Well?

When Government Takes Control There Is No Recourse. With the level of corruption present in our current Government - What makes you think that it will "Magically" go away?

Humanity Is Constant - They Act In Their Own Self Interest.

When Power Is Centralized, Evil Seeks The Nexus. Beware the seat you intend for angels be taken by those of odious intent.

Remember The Constitution And The Environment That Forged It. Self Reliance And Voluntary Interaction For Mutual Benefit Must Be Allowed To Flourish - Socialization Is In Direct Opposition To These Two Cannons.

When all aspects of your life come under the "Regulation" of Government - All Turns To Grey; You Exist, But You Never Truly Live.

Jun 08 01:57 PM

[Howard_T:]

One thing that is not mentioned is the role of the US tax structure. Is it not an incentive to "financialism" that taxes take so much out of a business, and the business is not allowed to mitigate their effect by taking larger credits for research, product development, and such?

Jun 08 04:52 PM

[derryl:]

Whether or not you agree with Tom's solutions you have to admit this article is a beautiful piece of writing!

Jun 09 11:22 PM

[jimmy46:]

no underlying intention of receiving or delivering the goods –"""

THERE IS NOTHING PER SE THAT IS WRONG WITH THIS,
SPECULATORS DURING NORMAL TIMES,
PROVIDE LIQUIDITY TO THE MARKET AND MAKE IT MORE EFFICIENT. i.e. BETTER PRICING

A BETTER WAY TO LOOK AT THE PROBLEM IS TO DIVIDE FINANCIALS INTO 2 CATEGORIES.

1. 1st ORDER DERIVATIVES
THESE ARE SCRAPS OF PAPER THAT HAVE A CLAIM ON SOMETHING REAL.
STOCKS, BONDS, CD'S, FUTURES WITH A CLAIM ON FOOD, METALS, ENERGY.

and

2. 2nd ORDER DERIVATIVES
THESE ARE SCRAPS OF PAPER THAT HAVE A CLAIM ON
---THE CHANGING VALUE OF A 1st ORDER DERIVATIVE.

STOCK OPTIONS, FUTURES RELATED TO CHANGING INTEREST RATES, OR CURRENCY VALUATIONS, CDS's....

PEOPLE BUY #2 BECAUSE OF THE LEVERAGE,
BUT THEY HAVE NO VALUE TO OUR ECONOMIC SYSTEM.

THE STOCK OPTIONS AND BONUSES THAT ARE LARDED OUT LEAD EMPLOYEES TO TAKE RISKS THEY OTHERWISE WOULD NOT.

Jun 11 12:47 PM

[jimmy46:]

no underlying intention of receiving or delivering the goods –"""

THERE IS NOTHING PER SE THAT IS WRONG WITH THIS,
SPECULATORS DURING NORMAL TIMES,
PROVIDE LIQUIDITY TO THE MARKET AND MAKE IT MORE EFFICIENT. i.e. BETTER PRICING

A BETTER WAY TO LOOK AT THE PROBLEM IS TO DIVIDE FINANCIALS INTO 2 CATEGORIES.

1. 1st ORDER DERIVATIVES
THESE ARE SCRAPS OF PAPER THAT HAVE A CLAIM ON SOMETHING REAL.
STOCKS, BONDS, CD'S, FUTURES WITH A CLAIM ON FOOD, METALS, ENERGY.

and

2. 2nd ORDER DERIVATIVES
THESE ARE SCRAPS OF PAPER THAT HAVE A CLAIM ON
---THE CHANGING VALUE OF A 1st ORDER DERIVATIVE.

STOCK OPTIONS, FUTURES RELATED TO CHANGING INTEREST RATES, OR CURRENCY VALUATIONS, CDS's....

PEOPLE BUY #2 BECAUSE OF THE LEVERAGE,
BUT THEY HAVE NO VALUE TO OUR ECONOMIC SYSTEM.

THE STOCK OPTIONS AND BONUSES THAT ARE LARDED OUT LEAD EMPLOYEES TO TAKE RISKS THEY OTHERWISE WOULD NOT.

Jun 11 12:51 PM

[jimmy46:]

no underlying intention of receiving or delivering the goods –"""

THERE IS NOTHING PER SE THAT IS WRONG WITH THIS,
SPECULATORS DURING NORMAL TIMES,
PROVIDE LIQUIDITY TO THE MARKET AND MAKE IT MORE EFFICIENT. i.e. BETTER PRICING

A BETTER WAY TO LOOK AT THE PROBLEM IS TO DIVIDE FINANCIALS INTO 2 CATEGORIES.

1. 1st ORDER DERIVATIVES
THESE ARE SCRAPS OF PAPER THAT HAVE A CLAIM ON SOMETHING REAL.
STOCKS, BONDS, CD'S, FUTURES WITH A CLAIM ON FOOD, METALS, ENERGY.

and

2. 2nd ORDER DERIVATIVES
THESE ARE SCRAPS OF PAPER THAT HAVE A CLAIM ON
---THE CHANGING VALUE OF A 1st ORDER DERIVATIVE.

STOCK OPTIONS, FUTURES RELATED TO CHANGING INTEREST RATES, OR CURRENCY VALUATIONS, CDS's....

PEOPLE BUY #2 BECAUSE OF THE LEVERAGE,
BUT THEY HAVE NO VALUE TO OUR ECONOMIC SYSTEM.

THE STOCK OPTIONS AND BONUSES THAT ARE LARDED OUT LEAD EMPLOYEES TO TAKE RISKS THEY OTHERWISE WOULD NOT.

Jun 11 12:52 PM

[Poor Dude:]

I'll pile on and also say kudos for well-written and compelling article. Good job!

In principle, my core tendency is to recoil against any argument for a larger or more intrusive government. And yet, I view our financial markets today as a den of thieves.

Perhaps a simpler and more effective solution would be to simply outlaw all financial transactions which are speculative in nature and serve no underlying economic function? I disagree with the poster who said that such speculation serves a legitimate purpose, because I don't feel that it does.

Another thought is the possibility of holding people personally responsible for the results of their actions. Make the penalties for white collar crime equal to or worse than the penalties for blue collar crime. Which does more harm to our system: the unemployed vagrant who takes a handgun into a quick mart and steals $100, or the banker who creates an investment that subsequently loses $1 billion and wipes out the lifetime savings of thousands of innocent people? Instead of looking back after the fact and arguing over whether or not we should put caps on the bonuses these people should receive in the future, I think we should be gathering up the ring leaders, confiscating all their assets to repay as much of the losses as possible, and throwing their sorry behinds in jail for the rest of their lives.

Leave the markets free, but make the free market participants aware that if their actions cause harm to innocent people, then they will be held responsible and they WILL pay for their crime. And then do it. That should solve the problem.

Jun 16 12:57 PM