Thursday, March 26, 2009

Call a Spade a Spade

Amidst all the talk of how to regulate financial markets, it seems like there's one simple solution that will prevent a lot of the wild speculation and financial bubbles that have caused so many problems. Let's call a spade a spade and treat financial derivatives and options and short term trading for what they are: gambling. Gamblers can only deduct losses up to their winnings in a given year. They don't get to carry losses over to future years.

Betting on short-term fluctuations in stock prices is no different than gambling. There's not an honest trader or economist or banker or finance professional anywhere who would say otherwise. And there is no greater benefit to society from betting on stocks than betting on cards.

Legitimate investment is a great thing. Giving a company money to do something productive and reaping the rewards for it is a valuable foundation of a healthy economy. But confusing short-term bets with investment is a huge mistake. It's a mistake that brought about a collapse in our financial markets. And it's a very easy mistake to fix.


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