Thursday, April 29, 2010

Cutting Back the Kudzu

Long-term investors want growth products and smooth, steady upward market growth.

Short-term speculators want betting products and volatile market performance.

These two groups will always be in conflict and will always be competing for money. But the health of our economy is firmly on the side of the long-term investors.

Stocks and bonds support the economy. They provide capital for growth and a return on investment the way a home garden provides food for the table.

Speculators are the kudzu of the market. Give them room, and they will take over. Then the market will crash because no market can survive when speculation chokes off growth.

Congressional reform is about requiring speculators to be more transparent, have stricter accounting, and higher security standards. All that is good, but we also need to limit the actual volume of speculation, both in the market and in the unregulated areas that speculators naturally seek out.

We must start treating speculators like kudzu. You never get rid of kudzu completely. Cutting it back is an ongoing job.

It is the nature of speculators to seek out new things to bet on, and the less regulated, the better. Just this year, a market opened up to bet on box office grosses. After flooding the market with junk mortgages, speculators are now sweeping up the devalued mortgages and even the tax liens for another go-round.

The government, probably the SEC, has to take on the job of staying on top of speculators--not just in regulated areas or "the market" but wherever they go.

Everybody understands the principle behind regulating casino gambling (whether or not you agree). It's not just a moral objection; it's also about the economic health of individuals and the community.

We all must understand that our economic health--in the U.S. and the whole world--depends on limiting gambling disguised as speculation, and that means constantly watching for speculation in all the forms it can take.

1 comment:

  1. Your observations are astute.

    People will bet on anything, if they're allowed to. The high gasoline prices of 2008 were largely due to speculation, from what I understand.