Vicious Rants of an Angry Yellow Man

When things are going well, everybody wants the capitalist system to run with as little regulation as possible. Now that things are falling apart, some people are demanding regulations. I am not an economist but shouldn't government have been regulating the mortgage business before all this collapsed? Now the government is boosting Freddy Mac and Fannie Mae to keep them out of trouble. My question is: Are they private or government companies? They are traded as a private companies on the stock exchange but yet the government (and thus taxpayers) are responsible for their financial health? When these two companies control half of the mortgage in the country, wouldn't the backing of the government cause brokers and buyers to be less careful?

The capitalist system is the best system in the history of the world's economy. But it cannot work without regulation. The law of supply and demand is not enough. Without regulations and their enforcement, it would be chaos as people will try to cheat which will lead to the collapse of the system. The SEC is now trying to regulate the shorting of stocks. This is where someone who believe that a stock will fall would then borrow shares from a brokerage firm, sell the shares, betting that he can buy them back at a lower price later. Some people bypass the borrowing part and sell shares that they don't control. This is important because if many people do that then many people can be selling the large numbers of stocks at a lower price and thus drive the price dramatically lower, even though no shares really changed hands. Not only that, large firms who short a certain stock may produce false rumors and thus drive the prices lower. This is obviously illegal but the SEC had not crack down on it. They are now trying to crack down on shorting of financial stocks but is far from able to regulate this market.

Basically it is the same argument I make about the speculation of the oil market. Many people are still not convinced of this and say it is all supply and demand. Well, the demand for oil world wide increased one percent in the last year but prices doubled. As I mentioned before there are other factors such as the decline of the dollar. But there is manipulation for sure. Commodity futures are a zero sum game. Yet time after time certain large "investors" come out ahead. This is basically gambling with certain players always winning. The game is not played with an even deck. The big players can and do spread rumors which drive up or down the prices. Sure, in the long run prices of oil will go up but it should not be at such a steep curve. Now the last few days the prices have gone down because of the announcement that the fed is going to tighten interest rate to combat inflation. This move from the Fed can lead to decrease consumption. The consumption decrease had not occur yet but the price already dropped because the large "investors" already knew of the announcement ahead of time and can sell their "calls" before the ordinary investors can. Whether the prices go up or down in the near future will depend more on news and rumors than on supply and demand.