Posted by Shyam Moondra
Undoubtedly, risky mortgage-backed securities led to credit crunch, which, in turn, is causing global economic slowdown. The stock markets have lost value by as much as 80% in some parts of the world. The panic selling is getting aggravated by computerized trading by hedge funds and other financial institutions. When the Dow-Jones average moves up and down by several hundred points several times a day, this shows that big players' unregulated trading practices are only making nervous markets even more volatile.
The stock markets were formed to help corporations raise capital for expansion. The stock prices moved up or down based on the company fundamentals. However, since banks and hedge funds started computerized frantic buying and selling, including short selling, the stocks move up or down not based on fundamentals but speculation, turning stock markets into gambling casinos. These computerized high-speed trading practices have harmed our financial markets and require investigation by the Congress to decide if limits be placed on the trading practices of big organized players that have created their own modern version of financial mafia.
Secretary Paulson, SEC Chairman Cox, and FED Chairman Bernanke all have done a terrible job in managing the economic affairs of the country. They discounted the risks associated with mortgage-based derivative securities, they failed to properly monitor the capitalization of highly leveraged banks, and they consistently failed to understand the dire consequences of what was going on in the financial markets. What they have done since then is a patch-work of spur-of-the-moment remedies, without fully understanding the scope of the problem. President Bush has failed to provide leadership and the Congress failed in its oversight responsibilities. I think electing Sen. Obama as the next president is now imperative to bring a transformative change to our regulatory regime and provide leadership in calming down the nerves of the investors. It's also the right time to give filibuster-proof majority to the Democrats in the Senate to speed-up the implementation of the Obama plans and strategies. I believe bringing in new people at SEC, Treasury and FED will help stabilize the markets.
The Congress needs to start deliberating on the role of organized computerized trading by hedge funds and banks and implementing regulations to stop market manipulation and abuse by these big players. We need to bring back the markets that move based on fundamentals. We also need to ban or at a minimum limit short-selling (e.g., no more than, say, 2% of outstanding shares can be shorted at any given point in time) and options trading.
