Interesting how you believe that 71% of the NYSE companies, ALMOST ALL WITH EARNINGS, don't deserve a higher valuation than companies whose greatest talent is selling their stock.
I take it you believe that AMZN is an example of one of your "effcient" companies, selling products below cost, paying millions in brand-name advertising costs, and continuing to project losses for several years to come.
As for hedge funds, they borrow their money from financial institutions and brokerages. These institutions provide this credit, oftentimes not doing the necessary risk analysis to properly understand their exposure to a client's default. That was the lesson of LTCM.. providing easy credit to them without proper collateralization requirements, or financial risk analysis between counterparties.
Options are nothing more than what their name states they are. They are an OPTION to buy or sell a stock, not an obligation. However, it is when Hedge Funds begin selling puts or naked calls, or any other number of instruments where they don't own or control the underlying equity, or where they are obligated to buy the underlying security, that is where the risk comes into play and their creditors should take a more aggressive stance is preventing over-extension.
And that is what must be regulated. You have the right to spend your cash anyway you wish. But when you borrow that money based upon questionable collateral, it impacts the entire financial system. Permit enough people to engage in borrowing against inflated assets and you invite a massive liquidity freeze, where no one wishes to take on risk and assets plummet in value exacerbating the downslide.
I don't know why its so hard for you to understand what I'm stating. I'm not deriding use of leverage or derivatives, nor the use of margin. I'm deriding the EXCESSIVE USE of it in such a manner that it places the rest of the economy at risk.
Surely you don't believe that all of the problems associated with LTCM suddenly disappeared and that it could never happen again, are you? From my view, it has only gotten worse.
All I'm asking for is that the entire economy not be punished with high interest rates for the excesses of those who borrow to speculate, not to invest or consume. I just believe there should be a higher premium placed on that money which is borrowed for the purpose of speculation, in addition to stricter collateral requirements.
Why is that so terrible?? |
