More state intervention through laws and regulations: the future of financial intruments as mortgage-meltdown reveals high cost of unfettered markets

March 7, 2008

More state intervention through laws and regulations: the future of financial intruments as mortgage-meltdown reveals high cost of unfettered markets. The US heads towards recession, shares plungs, oil prices have reached a $120 peak, gold a $1000, OPEC spurns US call for more oil production, activist shareholders call for more transparency and accountability of CEOs, but complex financial instruments used by hedge funds and private equity funds that operate outside of regulation, continue to create more wealth for the wealthy. Wealth disparities intensify as hedge funds and private equity funds skim off the cream of global markets by operating from tax-free offshore locations using everything from emotions, gut feelings, intuition, chaos theory and complex financial algorithms (based on variables, outcomes and values that might be realized in the future and money that is more cyber that really real. These financial institutions with their rhizome-like roots have permeated practically every aspect of our economic lives through our pensions, mortgages and investments. They have create havoc in the economies of nation states and lower quintile households. They gamble big and lose big. When their losses cause the inevitable domino effect, nation states and citizens are forced to cover their losses to prevent the worst. The financial crisis has been triggered by the invisible hand impatient for higher returns, controlled not by a law of nature, human or otherwise, but by an insatiable addiction to a money game. Law makers and regulators from the state and the market are calling a halt.

Bajaj, Vikas. 2008. “Mortgage Defaults Reach a New High.” New York Times. March 6, 2008.

Other related New York Times stories:

  • Bush and Fed Step Toward a Mortgage Rescue (March 5, 2008)
  • Bundled Mortgages and Dubious Fees Complicate Foreclosure Cases (March 4, 2008)
  • Spitzer to Present a Plan to Reduce Foreclosures (March 4, 2008)
  • Other related stories:  

    Acharya, A., H. Almeida, and M. Campello, 2006, “Is cash negative debt? A hedging perspective on corporate financial policies.” Journal of Financial Intermediation.

    Bates, Thomas W.; Kahle, Kathleen M.; Stulz, René M. 2007. “Why do U.S. firms hold so much more cash than they used to?”  (October 2007). Fisher College of Business Working Paper No. 2007-03-006 Available at SSRN: http://ssrn.com/abstract=927962

    Dittmar, A., and J. Mahrt-Smith. 2007. “Corporate governance and the value of cash holdings.” Journal of Financial Economics 83, 599-634.

    Johnston, Megan. 2007. “Whatcha doin’ with all that cash?: Summer money scramble to be one hot topic at AFP confab.” Financial Week. October 22, 2007.

    McDonald, Ian. 2006. “Cash Dilemma: How to Spend It.” Wall Street Journal. May 24, 2006. p. C3. McDonald, Ian. 2006. Capital Pains: Big Cash Hoards.” Wall Street Journal. July 21, 2006. p. C1. Polczer, Shaun. 2008. Scientific investor finds predictability in chaos: Check your emotions before acting.” Calgary Herald. March 04, 2008.

  • Relief for Homeowners Is Given to a Relative Few (March 4, 2008) 
  • Walter Zimmerman, principal partner in New York-based United Energy brokers, applies chaos theory to commodity markets. ” Chaos theory is not based on chaos but on the theory that extremely complex phenomena, like the market, have underlying hidden patterns that can be revealed by delving deeply to glean predictive information about that which was seemingly chaotic. He bases his market predictions on the assumption that markets are reflections of human nature and that both are unchanging, both are more emotional than logical, and that behavioural patterns of human nature/herd instinct/the market will be repeated over time. He advises his clients, the bigger oil producers in Calgary to hedge production against high commodity values (oil at $120 a barrel). If the economy continues to unravel, oil prices will correct lower to about $70 or $80.  He argues that governments cannot fight a recession and inflation at the same time. Cutting interest rates to fight recession leads to inflation and fighting inflation depresses economic activity. Summary of (Polczer 2008-03-04).

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    One Response to “More state intervention through laws and regulations: the future of financial intruments as mortgage-meltdown reveals high cost of unfettered markets”


    1. Thanks for the article.


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