Harry E. Emerson, III
hemerson @ SurferNETWORK.com
TIME TO RETHINK THE FINANCIALMARKETPLACE
on Program Trades, Short Selling, Buying on Margin,Short-Term Holding, Speculation, Market Churn, and Tax Policy
We lost 2 trillion dollars of value in the lastweek of September and first 10 days of October2008. If that's ok with you, then you needn'tthink about change. Otherwise, read on.
Accounting scandals. Lying and cheating CEO’s. The Internet boom and bust. The WorldTrade Center September 11 catastrophe. The oil crisis. And now, “toxic mortgages” andthe financial industry melt-down. There’s much for the fingers of blame to point at toexplain the current disaster in the financial markets. But there’s much that isn’t beingdiscussed, especially in the context of recurrent financial industry disasters that affectevery American.The purpose of this article is to raise issues and stimulate discussion on fundamentalmatters of the ways that the financial markets function and how that affects the economyand well-being of the nation.
ECONOMIC DISASTERS ARE NOT UNAVOIDABLE
--they happen because our rules and regulations permit them to happen.
There are four elements of particular interest to this discussion: stock market controlsintended to minimize volatility; short selling; buying on margin; and government policies, including tax policy, to discourage short term speculation.
In entering this discussion, the first and most important thing to realize about buyingstock is that the company whose stock you are buying doesn’t get the money. You arehorse-trading with someone else who already owns the stock. Therefore, proposals thatmight minimize volatility neither help nor hurt the company – they will, however, helpstabilize the market, which will help you, your retirement fund, and the nation as a whole.
A BRIEF HISTORY OF RECENT FINANCIAL DISASTERS
Remember Black Monday? The largest single stock-market drop in Wall Street historyoccurred on "Black Monday" – October 19, 1987 –DJIA plunged 508 points, from 2246to 1738, losing 22.6% of its total value. During the period of October 10th throughOctober 19th, the Dow fell by almost one third, representing a loss in value of alloutstanding United States stocks of approximately one trillion dollars. That one-day fallfar surpassed the one-day loss of 12.9% that began the great stock market crash of 1929and foreshadowed the Great Depression. The Dow's 1987 fall also triggered panic sellingand similar drops in stock markets worldwide.July 23, 2002 – updated Oct. 2008Harry E. Emerson, IIIPage 2of 7