http://www.arabnews.com/?page=7§ion=0&article=82516&d=21&m=5&y=2006
Sunday, 21, May, 2006 (23, Rabi` al-Thani, 1427)
Stock Market, Free Market and Regulations
Dr. Khaled Batarfi, [EMAIL PROTECTED]
My last article about the social effects of the stock market
crash and the needed help to its victims generated different responses. A
pro-free market reader called me a communist for soliciting government support.
Others, of his stand, were more polite, but hesitant to accept any hint of
official intervention. Players in any game should accept losses and gains, they
believed. Referees should stay aloof and neutral.
E. Rennes Bogary is of this school of thought. She wrote: "My
opinion is that those who do not know how to play the market should be
discouraged from doing so. It is a dangerous game at best. There have been
warnings way ahead of the crash that it was going to happen. People,
unfortunately, like to gamble. There is a certain technique in playing the
stock market, and these techniques should be learned. In my opinion, if you
gamble and fail, you must face the consequences.
On the other hand, there were many who called for stricter
regulations, more hands-on guidance, and "positive" influence, above and below
the board. The market is new, the system is unproven and most players are new
to the game. Adult observation, therefore, is a must.
A Swiss friend tells me that many investors have been
complaining that the Swiss stock market is overregulated. But time proved that
such strictness protected it from the crashes other bourses suffered.
The American government, explains my friend Abu Faisal, does
intervene discreetly in the stock market to protect it from undue influences.
After the Black Monday, when Wall Street crashed in mid-1980s, President Ronald
Reagan appointed a powerful government task force (the Working Group on
Financial Markets) in March 1988 to stabilize it. So, if this happens in the
capital of capitalism, why can't we do the same in a newly founded, untested,
vulnerable market?"
Rick Savage agrees: "You are right to bring up the question
of helping the people as well as fixing the market, because they are obviously
related.
People losing money is always a risk. But the risk becomes
devastating when the money is borrowed. One of the main reforms in the US
market after the crash in 1929 was to make it illegal to use borrowed money to
invest. You should definitely do the same thing.
But a solution for the people now would be for the government
to buy all the debt from the banks and others and then work out a plan with the
people. The government buying the debt will make sure that the banks and other
lenders don't fail or suffer huge losses. The government can then on a
case-by-case basis forgive some portion of the debt for the individual people,
and rework the payment schedules for the rest so that people have a chance to
make payments without ruining their financial lives.
But I wouldn't suggest a complete bailout for investors. They
would have gladly accepted all the profits if things went well. They need to
absorb some of the risk and cost of their choices.
Also, some of the investors haven't sold all their losing
stocks. Hence, at this point they only have what are called "paper losses". The
government could also buy those shares at higher than current market value to
help ease the pain.
I'm a strong believer in free markets. And I normally don't
believe in bailing people out. But two conditions with the Saudi markets make
it acceptable in this case:
1) The markets are new and just developing, and aren't
working properly yet.
2) In some cases there was actual fraud and manipulation by
the big investors and owners."
In my opinion, the concerned authorities allowed the market
to boom and blossom without restraining the sharks' heavy underhand or giving a
warning to small investors. When the bubble finally burst, officials made the
situation worse by saying the wrong thing at the wrong time. Instead of calming
the nervous market, they went out of their way to call it an overdue correction
of an overvalued market. Such statements worsen an already disastrous situation.
Since these government agencies were part of the problem it
is only fair now to be part of the solution. Besides, helping the needy and
stabilizing the economy is government's duty and top priority. One need not be
communist to advocate that universal principle!
[Non-text portions of this message have been removed]
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