Speculators are a frequent target of big government, because speculators help bring about the consequences of bad government policy. Greece, aided by the ever economically brilliant Barack Obama, is taking just this approach:
President Barack Obama has “responded positively” to calls to clamp down on market speculators, the Greek PM said after talks in Washington.
…Greece has blamed market speculators for worsening its current economic troubles.
European politicians have already expressed their concern over the issue.
“We ourselves were in the last few months the victims of speculators,” Mr Papandreou said, after meeting Mr Obama.
They are victims! And how, exactly, have they been victimized?
They say speculators, such as hedge funds, are unfairly betting that Greece will default on its loans.
Such moves are making it more expensive for Greece to borrow funds.
The speculators are typically betting against Greece defaulting on its government bond payments – or having its credit rating lowered – by buying large quantities of a complex financial insurance instrument called a Credit Default Swap (CDS).
It unfortunately does not occur to them that speculators are “betting against Greeze defaulting on its government bond payments” because the policies of the Greek government have made it more likely that they will default on their bond payments.
This is what is supposed to happen. Good policies get rewarded; bad policies get punished.
Speculators gain nothing by being wrong. So often it is insinuated that they deliberately drive this or that down, that it’s bad to “bet against” some thing, and that the only reason it happens is because speculators are greedy. Unless it’s oil, then they greedily bet it up.
There’s the rub. It makes no difference to speculators which way anything moves, only that they guess right. And because they have strong financial incentive to do so, they usually do. This means their bets are a useful signal to the market.
Imagine if more evil, greedy speculators had bet against the U.S. financial markets in the mid 2000’s like Warren Buffet did. Maybe there would have been a strong enough signal to correct the course before it was too late.
Obama’s siding with Greece against speculators is not surprising. Not only does he harbor a fundamental antipathy to all things free market, but he understands that when the U.S. faces higher interest rates for borrowing in response to his irresponsible policies, he’ll be in a similar position of needing a scape goat.
The trend line here is interesting. It fits with my own theory, that bigger government results in greater polarization. However, it’s possible I was right for the wrong reasons. I readily admit that I cannot rule out other explanations. It’s possible, for instance, that this is a reflection of greater ideological homogenization of the parties thanks to realignment. Southern conservative have shifted from the Democrats to Republicans while Northeastern liberal Republicans have made the reverse trip.
I serve as Vice President of the Center for Freedom and Prosperity, a non-profit think tank dedicated to preserving tax competition and free markets. This site features my personal views, which are not reflective of CF&P.