Speculating With Financial Derivatives Is Socially Harmful: Slate

Slate:

On Monday, the U.S. Commodity Futures Trading Commission issued an order prohibiting the marketing of a new set of derivatives that would have enabled traders to bet on the winners of national elections. While these “political events contracts”—the latest development in the world of prediction markets—have their partisans, the CFTC’s order was based on fundamentally sound logic that should be applied more broadly. Financial instruments that serve primarily as a means of speculation rather than hedging should be banned, just as gambling is illegal in most contexts.

Read the whole story at Slate

Comments

[walstir]

01:22 AM on 04/09/2012

Gambling is illegal in many jurisdictions; but those who want to gamble just do so in jurisdictions where gambling is legal. You cannot gamble in Utah; but you just need to go next door to Nevada where you can gamble freely. Banning derivatives in America just means that those who want to trade in derivatives will do so in other countries where they are not banned.

[laura r]

12:59 PM on 04/06/2012

Bucket Shops specializing in stocks and commodity futures flourished in the United States from the 1870s until the 1919s. It became illegal to operate a bucket shop.
They felt that the 1907 stock market crash was due to the derivatives ( bucket shops).

But, in 1998 with the financial modernization act it became legal again.

Larry Summers explained that the market was based on an “implicit consensus that the OTC derivatives market should be allowed to grow and evolve without deciding” the legal issues—i.e., whether derivatives violated laws prohibiting bucket shops, gambling, and trading in unregistered securities, not to mention doing so outside the regulated options exchange. “At the heart of that consensus has been a recognition that ‘swap’ transactions should not be regulated . . . whether or not a plausible legal argument could be made” that the contracts are “illegal and unenforceable.”

They need to make it illegal again. Why should they be able to gamble, and then when they lose, they run to Uncle Sam for a bailouts.

[abbadabba]

01:59 PM on 04/06/2012

I am so glad someone else is on to these tired old bums. We didn't just roll back to 1934 by losing Glass-Steagall, we're in freaking 1907, again, without any bucket shop laws to protect us from wreckless gamblers in a $1.4 Quad derivatives market!!

"...Oh, my bucket's got a hole in it!..."

If you use the NYT's search engine and tune it to stories between 1851 and present, search "bucket shops," and you will have a hay day. I particularly like "Federal Raid on Bucket Shops," 1910. Though states had installed bucket shop laws to end this gambling, the feds were needed to cinch up this dirty business still operating in Philly, Chicago and other finance mob hubs. It's the first time in history the Feds tapped the telegraph to catch curb brokers fixing the prices on their tickers, too.

"The Bucket Shop Evil" 1904, is also a great two part read.Asks the question we are. Is this legal? Why is everyone whispering?

And "Broker Lashed with Whip," 1905 is hilarious if only for the passanger riding with the broker who was lashed by a buggy driver with a whip. Thompson escaped the lash his curb broking bucket shop partner Watson took from a likely angry dupe in their collective bucket. Thompson went on to craft Tea Pot Dome with his oily homies and run the GOP into the ground with that overreach, but he secured a fortune doing it.

[laura r]

05:26 PM on 04/06/2012

The book “The Bucket Shop Evil" sounds like a good book. Thanks for the recommendation.

[Bill Roth]

12:00 PM on 04/06/2012

If we are going to allow this form of gambling to continue then tax it! This is big income for the betters. Last I checked the citizens of Nevada pay no state income tax because of the revenue generated by the taxation of house winnings in the casinos. Soon no state in the US would pay income tax. An industry that makes nothing only profits from bets from the necessities of all civilized governments and societies. Oh, how good it is to own the world.

[iam99]

11:04 AM on 04/06/2012

Our nation is a rich tapestry of different peoples all trying to work for their share of life (this includes being able to afford food and water!), liberty and happiness for themselves and their loved ones - not just the top 1%.

[John Denton]

10:47 AM on 04/06/2012

What do they care? Fleece the muppet goyim is the game.

[humanbeing-rick]

10:46 AM on 04/06/2012

My observation shows that the speculators and gamblers that hijacked Wall Street, and our financial markets, have ruined the American economy and have greatly harmed our society.

[humanbeing-rick]

10:43 AM on 04/06/2012

"the CFTC’s order was based on fundamentally sound logic that should be applied more broadly. Financial instruments that serve primarily as a means of speculation rather than hedging should be banned, just as gambling is illegal in most contexts."
Yes! All speculation and gambling should be restricted and controlled within established gambling casino's, not in our banks or financial markets!

[abbadabba]

10:27 AM on 04/06/2012

Why, the derivatives market, aside from real insurance or price setting agreements in futures, is nothing but a black bottomed bucket shop of unregulated gambling.

All state's "bucket shop" laws were neutered in 2000 to make way. Those laws were put in place following the Panic of 1907 which was caused by folks stepping to a curb broker who would take your bet on the direction of a stock, requiring no skin in the game. THAT makes the real market less liquid as money slops over to the curb brokers/derivative markets.

The unregulated curb brokers made their money by surmizing the buyer's positions in other buckets by colluding with other curb brokers. Once some sucker with assets had himself well stretched over others' buckets, he'd get the well timed kick.

JP Morgan won himself a sound insurer and a railroad on the side by betting hard against the insurer in the bucket shop market to translate that panic into the real market, thus crashing the insurer's stock and whomever was deeply invested in that firm, the railroad guy. The two had no choice but to sell out to Morgan.

So, since 2000, the rest of the derivatives market is nothing but a black bottomed bucket inwhich derivatives traders set stupid dopes like MF up to take a big kick.

This WAS a state crime unitl 2000, and IS drag on the real markets as all that money is sloshing around in someone's filthy bucket.

[ggs83]

09:52 AM on 04/06/2012

The demise of our democracy will come from the greed within, not from any force outside.
they want to use our pension dollars to bet on our elections--their greed is outrageous
Over the years Wall Streeters lost their conscience and concern for country; greed took over.
And once they gained control of the pension funds of Main Street, they had their perfect hostage siuation in place.
Once upon a time, a private company could focus on making a good living by making a good product/service and that allowed them to treat their employees fairly while they made a lot of money but now the holy investors reign supreme; fewer jobs, less benefits, less costs are no longer about efficiency, it is are all meand to higher dividends.
Greed is good for the few and bad for the many
I cannot help but think of the money changers in the temple

[kickserv]

09:35 AM on 04/06/2012

Zero comments I'm shocked.

[ur2nutty4me]

09:34 AM on 04/06/2012

Just the fact that this is even being discussed after what we are going through shows our leaders and the 1 percent have total control and no respect for the country or it's people. We have a government in name only and a puppet with interchangeable animated heads as it's leader. There is little hope until the the rediculous belief of the people in believing their leaders have a liberal conservative view or that that even matters anymore in our rush to 3rd world economic status, come to their senses..............................

[abbadabba]

02:27 PM on 04/06/2012

Here's the GOOD STUFF fought for by the Best Generation.

The Atlantic Charter. Our finest hour. I know America wants that back, even if Plutoids try to sell them Imperialism. Did you know Texas banished "Imperialism" from their textbooks? You have to teach "Expansionism" from our Westward Expansion to our invasions of Central America and Asia. Gunboat Diplomacy must not be criticized, because that's what they want for us, AGAIN. Those bums.

Suck it, WS.

http://www.nato.int/cps/en/natolive/official_texts_16912.htm

This is one of the finest expression of humanity caught in a crossfire, ever!!!

[abbadabba]

02:40 PM on 04/06/2012

As the US exclusively crafts CDSs, and Britain is the place from which we snake through the Chunnel to drain the sovereign wealth of Europe with this manipulative speculation, have we not turned ourselves on our heads into the same evils the Altaltic Charter was formed to prevent? I got you in my sights, Wall Street. Give up that black bottomed bucket, or Pitt's Apaches are coming for YOU!!