Preventing the Crash of '29: Boom & bust or steady climb?

This article's abstract about stock trade taxes reads "While a transaction tax limits the extent to which agents want to trade on their optimistic or pessimistic price beliefs, the tax also reduces market liquidity, thereby amplifying price volatility in normal times. This article's abstract also seems to agree that taxes on stocks are bad, using research on Chinese taxes, while this one uses data from Taiwan. Abstracts are great to skim the literature in a field- of course, won't be a anything near an expert, but can get an idea beyond Wikipedia what the current thought is. I just went to Google Scholar and typed "stock transaction tax."
 
Hi,

Missed this thread and the last one phx1138

All I got to say is, at a certain point history matters and theory goes out the window. The Great Depression happened because of tight money, and the recession of 2008 wasnt worse because of loose money. To the point be was TIME Magazine Man of the Year. Ben Bernanke really is not a bad man and in fact, saved Western civilisation. Imagine if the US had collapsed like Greece is now. What would be happening around the world.

I get you want to punish those who make poor decisions but in the end losing jobs, people not finding work since 2008 is not because of bubbles or bad "management" of the economy. The best way to describe it is a "uber economy" (of you haven't heard of the term it is related to the concept of the Uber app where everyone works in deregulated industry offering services) where unions don't have power, entrepreneurs and risk takers are valued and regulation is non existent or unenforced.

You said you would prefer slow and steady growth instead of big booms and busts well, that is not the choice reality is offering you the choice is no growth or even stagnation (think Japan) or austerity (working well for Greece) compared to the superpower that is the United States that spends big and bad. The choice is obvious.

Hadn't American economic growth been pretty steady without being explosive from 1946 until the Great Recession, with only speed bumps along the way? (1)

1) Frex, the Energy Crisis of 1973 and 1979, the savings & loan crash, the tech bubble, and the housing bubble (2).

2) THAT bubble will only get much worse barring opening the borders to everyone under the age of thirty:rolleyes: to provide the population to fill all those empty homes (and pay the taxes to keep Social Security going).
 
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Hadn't American economic growth been pretty steady without being explosive from 1946 until the Great Recession, with only speed bumps along the way? (1)

1) Frex, the Energy Crisis of 1973 and 1979, the savings & loan crash, the tech bubble, and the housing bubble (2).

2) THAT bubble will only get much worse barring open the borders to everyone under the age of thirty:rolleyes: to provide the population to fill all those empty homes (and pay the taxes to keep Social Security going).

His definition of "steady growth" is one where nothing like 2008, 2000, 1990 1973 etc., can happen.

Probably heavy regulatory EU style economy would suit him, without the Euro.

The problem is EU/European style economy is mostly dependent on big business and/or government. It's the difference between 5% economic growth in the good times and 2%. Literally single digit percents make a difference, -2% and we have a recession. Almost all new jobs are from small or medium business. Large corporations have cornered the market and are looking for ways to cut jobs, not hire. Looking for ways to be more efficient or outsource or offshore.

Any regulation or rule is a cost small business. Take for example Uber. You have a lot of well meaning and well intentioned rules for taxi cabs, but as more time goes on more rules exist though well intentioned and well crafted and well constructed, strangle taxicab owners. So Uber disrupts the market with an alternate delivery model. This is not unique, it happened with inter-city buses being affordable difference to inter-city train travel, online pay-to-view killing video stores and so on. The common denominator is the regulatory process is bypassed and therefore overhead destroyed and market disrupted.

What people don't understand is the companies responsible for growth in a capitalist economy run on razor thin margins, having to borrow money from the bank to make payroll, and can't afford to hire armies or lawyers or accountants to interpret rules and regulations. The margin for error is 5 to 15% and from that the government takes a cut. The big companies can hire all the expensive warm bodies to comply with government demands, the small ones can't and go out of business or don't happen in the first place.

So, if you want to regulate, it had better be a life-or-death situation like poisoned food or pollution or dead babies. Otherwise you are just interfering in the market and will cause unintended consequences especially to the small operator who has no voice and no political power, but is responsible for all the real non-fraudulent economic growth in the country.
 
His definition of "steady growth" is one where nothing like 2008, 2000, 1990 1973 etc., can happen.

Probably heavy regulatory EU style economy would suit him, without the Euro.

The problem is EU/European style economy is mostly dependent on big business and/or government. It's the difference between 5% economic growth in the good times and 2%. Literally single digit percents make a difference, -2% and we have a recession. Almost all new jobs are from small or medium business. Large corporations have cornered the market and are looking for ways to cut jobs, not hire. Looking for ways to be more efficient or outsource or offshore.

Any regulation or rule is a cost small business. Take for example Uber. You have a lot of well meaning and well intentioned rules for taxi cabs, but as more time goes on more rules exist though well intentioned and well crafted and well constructed, strangle taxicab owners. So Uber disrupts the market with an alternate delivery model. This is not unique, it happened with inter-city buses being affordable difference to inter-city train travel, online pay-to-view killing video stores and so on. The common denominator is the regulatory process is bypassed and therefore overhead destroyed and market disrupted.

What people don't understand is the companies responsible for growth in a capitalist economy run on razor thin margins, having to borrow money from the bank to make payroll, and can't afford to hire armies or lawyers or accountants to interpret rules and regulations. The margin for error is 5 to 15% and from that the government takes a cut. The big companies can hire all the expensive warm bodies to comply with government demands, the small ones can't and go out of business or don't happen in the first place.

So, if you want to regulate, it had better be a life-or-death situation like poisoned food or pollution or dead babies. Otherwise you are just interfering in the market and will cause unintended consequences especially to the small operator who has no voice and no political power, but is responsible for all the real non-fraudulent economic growth in the country.

Agreed with all. Problem: At the local level its usually the small businesses who are the worst polluters, as they have the least to lose when figuring the bottom line. They don't have to worry about stock values. In my home town we had that problem with businesses big and small. And we are known as a highly regulatory state.

If you are poisoning the soil, but doing so in a way that it takes years and years to be discovered, a small company run by 50 and 60 year olds can gamble that they can make out and hit the silk of retirement before the EPA shows up.

The problem is also human. The IRS motto is "Big People, Big Problems. Little People, little Problems." And if your evaluations are written on the amount of CASES you resolve, rather than the amount of $$$ you reclaim for the IRS, you can spend decades going after ExxonMobil, probably gaining nothing, while the guy at the next desk is a hero for crushing 500 family owned delis.:rolleyes: Who would you rather be? The guy seen as a failure who never gets a promotion, or the guy who climbs up the ladder to a senior inspectorship?
 
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strangecircus said:
His definition of "steady growth" is one where nothing like 2008, 2000, 1990 1973 etc., can happen.
Where 2008 & 1929 can't, yes. 1973 really had little to do with financial shenanigans. External forces will always be outside national regulatory control. Should the USG have responded differently? IDK.
strangecircus said:
Probably heavy regulatory EU style economy would suit him, without the Euro.
I can't say anything about the EU's state of play, but don't bet on it. Different regulation doesn't mean more, necessarily.
strangecircus said:
The problem is EU/European style economy is mostly dependent on big business and/or government. It's the difference between 5% economic growth in the good times and 2%. Literally single digit percents make a difference, -2% and we have a recession. Almost all new jobs are from small or medium business. Large corporations have cornered the market and are looking for ways to cut jobs, not hire. Looking for ways to be more efficient or outsource or offshore.

Any regulation or rule is a cost small business.
And we have the usual defense of laissez faire.:rolleyes: Fine. When AIG or Bear does something stupid, let them go out of business.:mad: And when they screw over investors, let the investors sue the execs for every dime they've got.

Regulation is a price for living & operating in a civilized society. You don't like it? Set up in Russia. See how you like dealing with your business being seized by the gov't or gangsters whenever they feel like it. See how you like never knowing what the rules are. Do you really think that's better for your business?:confused:
strangecircus said:
as more time goes on more rules exist though well intentioned and well crafted and well constructed, strangle taxicab owners.
Society is more complicated now than it used to be. It would seem to follow the rules have to be, too. Or should there be no rules? Do you want to hire a cab when you have no idea what the per mile rate is going to be? Or if there is one? Or if the cabbie can charge whatever he wants? (Which would appear to be the Uber model...) Pardon me for thinking that's not a good idea.
strangecircus said:
What people don't understand is the companies responsible for growth in a capitalist economy run on razor thin margins, having to borrow money from the bank to make payroll, and can't afford to hire armies or lawyers or accountants to interpret rules and regulations. The margin for error is 5 to 15% and from that the government takes a cut. The big companies can hire all the expensive warm bodies to comply with government demands, the small ones can't and go out of business or don't happen in the first place.
Another defense of no regulation at all. So, you'd rather retailers be able to advertise prices they have no intention of offering, charge any price they like (changing it from customer to customer), & refuse to sell to people they don't like? You'd like groceries not to have to maintain fridges at a temperature that will keep meat from rotting & be able to sell rotten product as if it wasn't? You'd like car companies to be able to sell cars with defective airbags & no firewalls &, IDK, bolts that won't keep the wheels on? You don't think regulation matters?

So why is it you oppose regulations on banks & like institutions to keep them from people's houses out from under them? Or to prevent companies from doing stupid things like AIG did? Or from selling products that have depend on outcomes nobody can measure, because they're too complicated, or because nobody knows what the relationships are, or both?
strangecircus said:
So, if you want to regulate, it had better be a life-or-death situation like poisoned food or pollution or dead babies.
I disagree. (My examples above are off the top of my head.) I'd say regulation is about keeping out the cheats. AFAIK, there's no bank or brokerage firm that qualifies as "small business", & my main aim is to prevent the financial screw-ups, not tell your local Burger King how fast they have to serve a burger.

There's a difference between good (or necessary) & bad (or unnecessary) regulation. I'd say, frex, regs requiring passenger trains to survive :)rolleyes:) crashes with freights, or to use their horns at every level crossing, or to limit the radii of turns :)confused:) are bad. I'd say regs to prevent mortgage companies selling loans to people who they know can't pay for them, or to prevent loans (of any description) with 60% APRs, are good ideas. Would you disagree?
Lord_Thrawn said:
This article's abstract about stock trade taxes reads "While a transaction tax limits the extent to which agents want to trade on their optimistic or pessimistic price beliefs, the tax also reduces market liquidity, thereby amplifying price volatility in normal times. This article's abstract also seems to agree that taxes on stocks are bad, using research on Chinese taxes, while this one uses data from Taiwan. Abstracts are great to skim the literature in a field- of course, won't be a anything near an expert, but can get an idea beyond Wikipedia what the current thought is. I just went to Google Scholar and typed "stock transaction tax."
That is interesting. I hesitate to rely on PRC or ROC as a model, given the low (no?) regard for rule of law, but... IIRC, it was proposed in Britain, but either rejected or repealed. Anybody know why? (IIRC, the results were mixed, but not catastrophic.)
usertron2020 said:
At the local level its usually the small businesses who are the worst polluters, as they have the least to lose when figuring the bottom line. They don't have to worry about stock values. In my home town we that problem with businesses big and small. And we are known as a highly regulatory state.
IMO, this is less about regulation than about cost (amount) of enforcement. It does play into your remarks about how the system works... The issue of who's paying to enforce the regs is obvious. (It's also getting a bit OT...but what about improved whistleblower laws? That way, locals or employees who know about it, or suspect it, can do the "neighborhood watch" & save the state or feds having to, & so save that cost.)
usertron2020 said:
Hadn't American economic growth been pretty steady without being explosive from 1946 until the Great Recession, with only speed bumps along the way?
I'd say it was pretty good into the '80s. Then things got a bit insane, with the S&Ls getting into stupid lending & LBOs going crazy. AIUI, that was financed by a law allowing the writeoff of debt for R&D.:confused: How that works, I'm still not sure... How the IRS or SEC allowed it to continue, I'm even less sure.:confused:

So, was the state of regulation generally, & financial regulation specifically, out of control in the '60s & '70s? Were corporate taxes burdensome high in the '50s & '60s? (Okay, there's a postwar boom & Baby Boom in play. So be a bit careful about it.) As I'm looking at it, I'm not seeing the problem.

Then the deregulators came to DC, & we got the LBO & S&L debacle & the '08 Crash. I can't say that's a causal connection for sure, but it damn sure makes me wonder.:rolleyes:
 
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phx1138, those are peer reviewed articles, not blog posts. They were rigorously tested, then sent around to others to make sure the conclusions were correct, then printed. You wanted statistical proof; there it is. Stock markets need a decent rule of law; no one is going to invest in a stock market where the rules can be openly manipulated. The Taiwan one analyzed data from 1999-2001; Taiwan was a democracy then, and had rule of law.
 
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Lord_Thrawn said:
phx1138, those are peer reviewed articles, not blog posts. They were rigorously tested, then sent around to others to make sure the conclusions were correct, then printed. You wanted statistical proof; there it is. Stock markets need a decent rule of law; no one is going to invest in a stock market where the rules can be openly manipulated. The Taiwan one analyzed data from 1999-2001; Taiwan was a democracy then, and had rule of law.
My doubts don't invalidate them, & I'm not the one who'd be deciding. In re Taiwan, I'll concede.
 
Where 2008 & 1929 can't, yes. 1973 really had little to do with financial shenanigans. External forces will always be outside national regulatory control. Should the USG have responded differently? IDK.

I can't say anything about the EU's state of play, but don't bet on it. Different regulation doesn't mean more, necessarily.

I already mentioned the reason that financial recessions are a different beast. Because they involve banks, which ripple throughout the entire economy. I can retrieve sources if you like but you seem unwilling to consider the point that economy-wide impact by financial recession is inevitable. You can't prevent the business cycle or crashes and booms and busts.

And we have the usual defense of laissez faire.:rolleyes: Fine. When AIG or Bear does something stupid, let them go out of business.:mad: And when they screw over investors, let the investors sue the execs for every dime they've got.

Regulation is a price for living & operating in a civilized society. You don't like it? Set up in Russia. See how you like dealing with your business being seized by the gov't or gangsters whenever they feel like it. See how you like never knowing what the rules are. Do you really think that's better for your business?:confused:

You can bring up Russia I can bring up Greece but in the end the burden of proof is on you since you advocate a change. I don't particularly think TARP was horrible since the money was paid back, and I think that FDIC stabilizes the market. I understand your point about rule of law, but you don't seem to accept there is a price for laws.

Suing execs for money back when money is lost is an unworkable premise. The whole point of a corporation is to shield you from personal liability. You can say then there should be more laws and more regulation. But no law or regulation beats the market. Every time you think you are smarter or better or faster than the market, it will beat you. The types of laws you want are best handled by the criminal courts like Enron prosecutions not lawsuits from investors which are a waste of everyone's time.

Society is more complicated now than it used to be. It would seem to follow the rules have to be, too. Or should there be no rules? Do you want to hire a cab when you have no idea what the per mile rate is going to be? Or if there is one? Or if the cabbie can charge whatever he wants? (Which would appear to be the Uber model...) Pardon me for thinking that's not a good idea.

Another defense of no regulation at all. So, you'd rather retailers be able to advertise prices they have no intention of offering, charge any price they like (changing it from customer to customer), & refuse to sell to people they don't like? You'd like groceries not to have to maintain fridges at a temperature that will keep meat from rotting & be able to sell rotten product as if it wasn't? You'd like car companies to be able to sell cars with defective airbags & no firewalls &, IDK, bolts that won't keep the wheels on? You don't think regulation matters?

So why is it you oppose regulations on banks & like institutions to keep them from people's houses out from under them? Or to prevent companies from doing stupid things like AIG did? Or from selling products that have depend on outcomes nobody can measure, because they're too complicated, or because nobody knows what the relationships are, or both?

I don't oppose specific regulations intended to prevent a specific problems. But "doing stupid things" is paternalistic and wrong. It implies the government and voters know what's best for the free market. They don't, for obvious reasons. You are taking edge cases which have nothing to do with a financial recession. If you really want to talk only about economics you shouldn't bring social engineering into the picture. You have no ideas about my political views or what economic growth I am willing to sacrifice for a decent society.

I disagree. (My examples above are off the top of my head.) I'd say regulation is about keeping out the cheats. AFAIK, there's no bank or brokerage firm that qualifies as "small business", & my main aim is to prevent the financial screw-ups, not tell your local Burger King how fast they have to serve a burger.

There's a difference between good (or necessary) & bad (or unnecessary) regulation. I'd say, frex, regs requiring passenger trains to survive :)rolleyes:) crashes with freights, or to use their horns at every level crossing, or to limit the radii of turns :)confused:) are bad. I'd say regs to prevent mortgage companies selling loans to people who they know can't pay for them, or to prevent loans (of any description) with 60% APRs, are good ideas. Would you disagree?

" Keeping out the cheats" even if we want to talk about social engineering, is obviously a secondary or tertiary concern to life-or-death situations. Pharmaceutical products are highly regulated because experimentation costs lives. Anything that costs lives is easily justified, because the method of redress (lawsuit / courts) is unavailable after you are six feet in the ground or your health is ruined. By making value judgments like "good" or "bad" you tie yourself to ethics which another person may or may not agree with. Again you can come up with edge cases but the point is regulation first started to prevent things like plaster of Paris in baby milk or medical quacks. If that is called "keeping out the cheats" then so be it but you and I would probably disagree on what is cheating and what is not.
 
strangecircus said:
economy-wide impact by financial recession is inevitable. You can't prevent the business cycle or crashes and booms and busts.
And I maintain there's a difference between a "bust" or a "great correction" & a crash like '29 or '08. All I'm after, really, is smaller swings. IMO, it's possible to reduce the depth of the "bottom". It may mean reducing the high at the top; so be it, if the average is the same (IMO it would be) or higher (& IMO, it might be).
strangecircus said:
the burden of proof is on you
I'm only suggesting discussion, no necessarily proof. You're right, tho...& I haven't proof I'm right.
strangecircus said:
I think that FDIC stabilizes the market.
I don't disagree.
strangecircus said:
you don't seem to accept there is a price for laws
I do. You don't seem to accept the price for no law (or no enforcement) is too high. Maybe we'll always disagree. So be it. Eventually, AHrs in the 22d Century will look at the archives of this thread & decide neither of us knew what we were talking about.:p (Whoa, necro!:eek::p)
strangecircus said:
The types of laws you want are best handled by the criminal courts like Enron prosecutions not lawsuits from investors which are a waste of everyone's time.
Unfortunately, that presumes there's been a criminal act, rather than just sheer, unadulterated, unparalleled stupidity or greed. What happens then? Yeah--nothing. The investors, & the public, get screwed over; the execs make millions; nobody gets punished; nothing changes. Can you say "'08 Crash"?:rolleyes: And yet you oppose changes...:confused:

Will the market always beat regulations? Probably. I continue to think (& maybe it's naïve) the regulators can at least stay close. Stopping the most obvious & outrageous things won't prevent trouble, but it should prevent crisis or catastrophe: no crash, but "great correction". As said, I can live with that.
strangecircus said:
I don't oppose specific regulations intended to prevent a specific problems. But "doing stupid things" is paternalistic and wrong. It implies the government and voters know what's best for the free market. They don't, for obvious reasons. You are taking edge cases which have nothing to do with a financial recession. If you really want to talk only about economics you shouldn't bring social engineering into the picture. You have no ideas about my political views or what economic growth I am willing to sacrifice for a decent society.
Honestly, your politics are of no interest to me. And if the gov't and voters get no say in the free market (as you seem to be implying), why do we need any kind of regulation at all?:rolleyes: Let's repeal the blue sky laws & the requirements for truth in a prospectus. Hell, let's repeal the requirement for there to be an actual company connected to a share.:rolleyes:

Irresponsible behavior is irresponsible behavior no matter how "free" or "unfree" the market is, & since the public is investing in that market, the public, & the gov't, are entitled to a say in what goes on in it & how it runs. That market does not exist in a vacuum. It is a product of a system of law. The deregulators & free market cowboys seem to ignore that. I don't.
strangecircus said:
" Keeping out the cheats" even if we want to talk about social engineering, is obviously a secondary or tertiary concern to life-or-death situations. Pharmaceutical products are highly regulated because experimentation costs lives. Anything that costs lives is easily justified, because the method of redress (lawsuit / courts) is unavailable after you are six feet in the ground or your health is ruined. By making value judgments like "good" or "bad" you tie yourself to ethics which another person may or may not agree with. Again you can come up with edge cases but the point is regulation first started to prevent things like plaster of Paris in baby milk or medical quacks. If that is called "keeping out the cheats" then so be it but you and I would probably disagree on what is cheating and what is not.
We probably would. I disagree with your fundamental premise only life & death matters should be regulated. (I'm presuming that's your intent, here.) What I'm not getting is why the financial sector, apparently alone of all, should be free of protective regulation. Maybe "good" & "bad" is an inexact way of putting it; if a behavior by a company is doing harm to the public, I call that "bad" & regulation to prevent it is "good". It appears you disagree with doing it.

I'm not going to get into your view on doing it everywhere; I do wonder if you disagree with prohibiting, frex, selling mortgages to unqualified buyers, or with touting shares a broker knows (or thinks) are garbage. Is doing it okay? Is regulating against it not okay?
 
And I maintain there's a difference between a "bust" or a "great correction" & a crash like '29 or '08. All I'm after, really, is smaller swings. IMO, it's possible to reduce the depth of the "bottom". It may mean reducing the high at the top; so be it, if the average is the same (IMO it would be) or higher (& IMO, it might be).

I'm only suggesting discussion, no necessarily proof. You're right, tho...& I haven't proof I'm right.

Peer reviewed studies or facts or proof isn't what I'm asking for (this is economics after all) just some sort of theory why you think there is a difference between a bust or correction or crash. I say the difference is it's a financial crash, because it's the banking system affected and therefore affects the entire economy. You just keep repeating there's a difference between a crash and a correction (layman's terms) without explaining anything. Especially if you use colloquial layman's terms, you should put some effort into explaining the core of your argument.

I will say however at least your arguments are fresh. Discussion of 1929 invariably falls into two camps, libertarians who blame FDR and the Great Society for the depression and liberals who hail FDR as a hero.

I don't disagree.

I do. You don't seem to accept the price for no law (or no enforcement) is too high. Maybe we'll always disagree. So be it. Eventually, AHrs in the 22d Century will look at the archives of this thread & decide neither of us knew what we were talking about.:p (Whoa, necro!:eek::p)

Unfortunately, that presumes there's been a criminal act, rather than just sheer, unadulterated, unparalleled stupidity or greed. What happens then? Yeah--nothing. The investors, & the public, get screwed over; the execs make millions; nobody gets punished; nothing changes. Can you say "'08 Crash"?:rolleyes: And yet you oppose changes...:confused:

Will the market always beat regulations? Probably. I continue to think (& maybe it's naïve) the regulators can at least stay close. Stopping the most obvious & outrageous things won't prevent trouble, but it should prevent crisis or catastrophe: no crash, but "great correction". As said, I can live with that.

The choice is not between "no enforcement" and "heavy regulation" but whatever your idea of regulation is and whatever exists now. Which is apparently, protection against stupidity and greed. However this is ill defined and is more social engineering than economics discussion. If you want to prevent greed and stupidity, you need some baselines (like age, race, religion, gender etc.)

Besides, I don't agree that greed and stupidity need to be protected against, except for the elderly and children (< 18) and deliberate disinformation or lies. As long as it is "lender beware" I don't particularly care how it works out, because I know the market will deal with problems and issues better than I can possibly imagine. I do agree that the government should not tilt things in favor of the seller, and it should not be "buyer beware" ex., the government should not make things easier for the seller or protect the seller in any way shape or form beyond the purpose of incorporation and criminal law.

Honestly, your politics are of no interest to me. And if the gov't and voters get no say in the free market (as you seem to be implying), why do we need any kind of regulation at all?:rolleyes: Let's repeal the blue sky laws & the requirements for truth in a prospectus. Hell, let's repeal the requirement for there to be an actual company connected to a share.:rolleyes:

Irresponsible behavior is irresponsible behavior no matter how "free" or "unfree" the market is, & since the public is investing in that market, the public, & the gov't, are entitled to a say in what goes on in it & how it runs. That market does not exist in a vacuum. It is a product of a system of law. The deregulators & free market cowboys seem to ignore that. I don't.

We probably would. I disagree with your fundamental premise only life & death matters should be regulated. (I'm presuming that's your intent, here.) What I'm not getting is why the financial sector, apparently alone of all, should be free of protective regulation. Maybe "good" & "bad" is an inexact way of putting it; if a behavior by a company is doing harm to the public, I call that "bad" & regulation to prevent it is "good". It appears you disagree with doing it.

I'm not going to get into your view on doing it everywhere; I do wonder if you disagree with prohibiting, frex, selling mortgages to unqualified buyers, or with touting shares a broker knows (or thinks) are garbage. Is doing it okay? Is regulating against it not okay?

You want to prohibit Forex? Well, sorry if people want to trade currencies I don't see any problem with that. Selling mortgages to "unqualified" buyers? Sorry I don't see any problem with that, because the qualification should be, the bank had better do its due diligence or else it's the bank's fault. "Touting shares"? It depends on the details. What's garbage to you is not garbage to anyone else, and most penny stocks are garbage.

None of that would stop speculation. It would encourage a culture of "government knows best" and hurt innovation and growth. You say you don't want to talk politics but the argument you are making is a political argument, not an economic one. The crux of your argument seems to be, some way to stop people from "tulip mania" or buying big when the craze hits. You want government to stop people from being stupid or government to stop people from buying a lot of useless junk. Well good luck with that.
 
I'm not going to get into your view on doing it everywhere; I do wonder if you disagree with prohibiting, frex, selling mortgages to unqualified buyers, or with touting shares a broker knows (or thinks) are garbage. Is doing it okay? Is regulating against it not okay?

As to brokers touting shares they think are garbage, that's already illegal. It always was but then Spitzer really cracked down on that 10 years ago. So anything you do now is legislating things that were already legislated.

As to mortgages, the failure of the market was that incentives were not properly aligned. The mortgage brokers had not accountability on credit. The underwriters sold of their risk so they put less emphasis on credit quality than on volume. And the ultimate holders of their credit risk either didnt do their jobs, turned a blind eye for short-term profit, or were duped.

The best way to fix this is not prohibit but align incentives appropriately. Just because a market fails doesnt mean it needs to be abandoned. It can be regulated. The best way to do this here is to make sure the parties responsible for issuing the credit have economics associated with the outcome - "skin in the game".
 
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