Why is it allowed to speculate on falling prices?
Opinions are divided on the subject of speculation: Critics say that betting on falling prices only led crisis states to bankruptcy, while others value derivatives as a hedge for transactions. The truth lies in the middle.
SSome consider speculation to be the devil’s stuff. Others consider it a great advantage of the markets to ruthlessly put fingers in wounds. This can lead to states like Greece, Ireland and Portugal having to look deep into the abyss. But was that the speculators’ fault? Or is the cause not more in the states themselves and the speculators only recognized the problems early on, exploited them extensively, but ultimately also contributed to an improvement in the countries that would otherwise not have existed?
The discussion is lively. Even companies often only change direction when there is no other way under the pressure of the markets. Uncovered short sales and thus a particularly risky form of speculation on falling prices in Europe have been banned since the financial crisis. The general speculation on falling prices remains possible. Derivatives and thus often criticized financial constructs are still allowed. Because they are not only a means of controversial speculation, but also serve as security. Many farmers, but also players in the oil market, would have no planning security whatsoever if they could not hedge against price fluctuations with financial contracts.
The taxpayer has little understanding, however, of using his money to bail out banks that are in trouble due to speculation and barely transparent financial constructs. Politicians are trying to find a middle ground. Speculation, yes, but more closely monitored. And tougher regulations for banks.