regulation argument

i’m sure this has been stated a hundred times before but its funny how regulation is only ever called upon when the vast majority takes a loss and a small minority makes a gain. is this what democracy is? we don’t like to lose, so when enough of us do, we wish to punish the prospect of opportunity? technically, if everyone had been shorting the devices (mortgage related products and their derivatives) that caused this mess in the first place, the prices would have more closely reflected their risk adjusted value and wouldn’t have been so lucrative for some and painful for most. regulation limits opportunity. opportunity is created from mispricing. therefore, regulation is an attempt at setting a known price. if we regulate everything, will there be opportunity anymore, or will opportunity be some facade we convince ourselves is still there? my main point is against the ban of short-selling or the uptick rule. i believe it would be truly prudent to be short your company’s stock or buy otm put options on your company’s stock in order to hedge your PV of wages by your asset base. i’ve never read anything on this so i’m pretty sure i’m a pioneer in this area and many will say, oooooh, conflict of interest as you should rooting for your company, but screw it, why would i leave myself open to be destitute should my company fail and therefore lose my job? at the same time, my portfolio will sink if my company’s failure is a result of overall economic slump. a ban on shortselling or even the uptick rule, would hinder people’s ability to do this at a low cost and i think that if everyone did this, bubbles would be much smaller as those with long-term short perpectives would be higher (as even if you buy puts, the offerer would be short that stock on average). this would allow for the individual to be hedged against financial hardship, which in turn results in less risk for the economy overall.

At Level 3, you will read material about keeping your asset exposures and your employment income streams uncorrelated, which includes dealing with overly concentrated assets in your employer. Selling puts on your stock is one way to protect yourself, provided it’s vested. Otherwise, you can deal in swaps or put them into an exchange fund or somesuch. As for regulation, under perfectly competitive markets, with no externalities (positive or negative), all actors are price-takers, etc., regulation is a net drag on the economy. When you find a perfectly competitive market like that somewhere, please let us know. For the rest of us, it’s a question of efficient regulatory design and trying to figure out if the net benefits (some of which are non-monetary) are worth the net costs (most of which are monetary). In order to balance non-monetary benefits and monetary costs, regulation does need to be embedded in a democratic political process.