OT...Some light reading after a rough day...From The Economist...a few excerpts..
A cautionary tale from the future......This newspaper story has just come to light after falling through a gap in the space-time continuum
REGS CLAMP DOWN ON NAKED LONGS!
September 26, 2021
FINANCIAL authorities in America and Europe took sweeping powers yesterday to avert a financial crisis by imposing restrictions on markets. In their sights are a peculiar brand of speculators known as “long-buyers” who buy assets not to live off the income they generate but to profit from rising prices.
“Some of these people buy homes that they have no intention of living in,” said Lord Poohbah, chairman of Britain’s Financial Services Authority, “and others buy shares they plan to own for just days or weeks, rather than the prudent time period of several years.” Their actions force prices up above fundamental valuation levels, critics say, causing some British tabloid newspapers to call leading fund managers “greedy pigs”.
Particular criticism has been reserved for people dubbed “naked long-buyers”, those who try to buy homes without putting up a deposit.
In the stockmarket long-buyers often buy shares after inadequate analysis of a company’s balance-sheet because they believe a “greater fool” will purchase them at a higher price. This happened in the so-called dotcom bubble of the late 1990s, leading to massive losses that destabilised the economy and eventually prompted the Federal Reserve to cut interest rates.
In addition, naive long-buyers pushed up the shares of financial companies, such as banks, in the mid-2000s, prompting the banks to indulge in irresponsible lending that led to the housing bust of 2007-10, an event that awakened fears of a repeat of the 1930s Depression.
“We cannot let the long-buyers destabilise the markets again,” said the American treasury secretary. He accordingly took powers to limit the scope of future price rises, including the creation of a so-called “Revolution Trust Corporation” that will issue a trillion dollars worth of shares in financial companies that will subsequently be sold in the market. The proceeds of the sale will be used to pay down the national debt, swollen by the costs of previous bail-outs of the financial system.
Industry analysts said that some of the damage done by long-buyers might have been prevented had a now defunct practice called “short-selling” been permitted. By speculating on falling prices, short-sellers could in theory prevent bubbles from being formed. However, their scope to trade was always limited by regulations and the tactic was killed off during the crisis year of 2008. “ |
