With Greece's 1-year Treasury notes yielding more than 200% to maturity, a default or severe haircut is a lock. For months, though, politicians sought to obfuscate the fiscal struggles, clearly predicted by free markets. Calls for austerity have now become economic reality. So why do politicians and regulators try to forestall the inevitable with sleight of hand?
Such tactics merely prolong the trauma and push off actual solutions to crises.
Short-sale bans on financial stocks in Europe in August did little to stem their decline, just as the SEC's own short sale ban was ineffective in the U.S. three years ago. Similarly, the commodity position limits recently passed by the Commodity Futures Trading Commission will adversely affect popular ETFs like the PowerShares DB Agriculture ETF (DBA)
Like objections to high-frequency-trading, there's a selective outrage over speculation: People generally only object when prices don't move their way. The next leg of market damage comes when regulators start regulating commentary.
When credit rating firms downgraded Portugal, Italy, Spain and Greece, flustered European Union regulators moved to "reign in" the raters, proposing new controls to insist those employees doing the ratings were "held accountable by supervisors." But, by intimidating opinions, the markets' best interests are hardly served.
Rather than try to evade reality, regulators might instead start by accepting it.
Free financial markets are the means by which investors express their opinion about what XYZ is worth. Restrictions on market-related speech have the same deleterious impact as controls on trading. Economic freedom does more good than regulatory force.
Ignoring or squelching politically inexpedient prices doesn't make them go away.