Nick Arnett <[EMAIL PROTECTED]>
> Yes, to the latter. I'm not talking about solving the current problem, but
> what could be done in the future to help prevent such a problem. It seems
> to me that the freedom to create extremely complex financial instruments
> enabled the present mess to happen. The idea is to avoid creating things we
> don't understand.
I agree that highly-leveraged positions, often involving complex derivatives,
are probably a bad idea. But I also think it is an extremely complex problem
to determine what leverage ratios and what types and combinations of
derivatives are optimal. Clearly, it would be folly to ban all leveraged
positions
or all derivatives.
I think the government is making a huge mistake by bailing
out companies, due to the moral hazard that is being created. If investors
were more concerned about going broke by investing in such risky companies,
then it is quite likely that the companies would take fewer risks. Instead, we
have the government bailing out those who took the worst risks, and barring
the short-sellers who tried to take the other side of the bet (i.e., favoring
less
risk).
Credit default swaps (CDS) appear to be an important proximate cause of
the recent market volatility. As I mentioned in another post, there is no
centralized
clearing organization for CDS, in contrast to other derivatives markets such
as stock options and futures, which do have centralized clearing. Know one knows
if their CDS counterparties will be able to pay off when a credit even occurs.
If the government were to help facilitate a consortium of banks to create a CDS
clearing organization, I bet it would help market stability.
> We're paying 20x what the previous owners paid in property taxes.
If I had a choice, I would rather pay most of my taxes as property (land) taxes
and
sales taxes. If the various governments could arrange things to keep the same
tax revenue, but make it all from property taxes and sales taxes, it would make
me happy. That way, people who don't consume very much or don't take up much
desirable land, don't pay very much tax. Those who consume the most and take
up the most desirable land should be paying the most to keep the government
running, I think.
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