Speculators Don’t Drive

A couple of years ago a friend of mine told me he was selling his house in Irvine and buying a bigger nicer house in Villa Park.  The price tag?  2.3 million dollars.

I was quite certain the real estate market was overheated and believed housing prices were going to go down.  I warned housing would drop 30-40% and explained many people were getting into expensive homes seemingly beyond their means.  At the time I did not know that stated income loans were driving the phenomenon, but I did know people with less financial ability than I had were purchasing homes I could not afford.  My friend assured me real estate would never experience such a drastic drop as I had prognosticated.

I was speculating property values would drop; my friend was speculating that they would not.

Months ago our politicians and some media anchors began attacking oil companies for fixing the market and sticking it to the folks.  Today it seems that tack has given way to vilifying oil speculators who have driven the price of oil up to today’s criminal and arbitrary levels.

Congress is currently debating legislation to reign in speculators, ostensibly to control fuel prices.  If history is any teacher, these measures may very well exacerbate problems or become implemented long after the crisis has subsided, in both instances promoting unintended consequences.  U.S. policies have already had deleterious effect on almost all aspects of American manufacturing; is trading commodities another business we would prefer to take place in some other country beyond the reach of political legislation?

If speculation is bad shouldn’t it be eliminated completely?  If not, what specialized knowledge do legislators possess to effectively manage its course?  Why is a little speculation healthy, but a lot is not?

Speculators affect prices by anticipating what might happen in a market.  Anticipating market scarcities increases prices now so that there might be supply in the future.  Is this a mechanism we want to eliminate?

We all speculate.  I am speculating that I can buy a 5000 square foot house in California for less than a million bucks if I wait another year.  Futures traders speculate that our tumultuous world situation will cause a greater scarcity in the availability of oil.  Bill O’ Reilly speculates his attacks on oil speculators will reward him with better ratings, and Washington Congressmen are speculating if they can pin America’s energy mess on anyone other than themselves they might maintain their incumbencies.

If my speculation is driving down the cost of homes maybe Congress should legislate to make predatory buyers like me illegal!

Legislating over futures traders makes no economic sense, it only makes political sense.

While Congress debates the best legislative remedies for our housing crisis and the best legislative remedy for our energy crisis, home owners who acquired loans they couldn’t afford, and consumers irate over their fuel costs are clamoring to these lawmakers for answers.  These same lawmakers who demanded lenders loosen up their lending policies to help minorities and who demanded we don’t develop more energy production facilities here at home.

Speculators don’t drive crises but legislators do.  How crazy are we to expect the people who built our economic woes have the ability to lift us from them?

If there ever was an argument for smaller simpler government, this ought to be one.

Copyright 2008 Jim Pontillo

6 thoughts on “Speculators Don’t Drive

  1. Like yourself I too watched people and friends of lesser means than myself purchase homes I could only dream of. However a government run bailout to remedy this is only laughable to me as you pointed out in your last sentence, the cummulative efforts of these bafoons no matter what is their speil is generally no more than political posturing and with their track record you would think they would promote some sort of self
    reliability program where their intervention would never even need to be discussed. Of course that harks back to more ancient times when it was belived that a man/woman who worked hard and sacrificed now for what they thought would be well deserved payoffs in the future for their families, would not get a humiliating financial testical-stomping for their efforts, just so the crackhappy family down the street who lied cheated and molested their way into an adjustable rate mortgage can continue to defy the addage that crime doesn’t pay.
    …..ahhhh…..I must be an idiot all those wasted years in school, and overtime hours in the office! to think I could of gotten it all had I been a little more slackkard in my upbringing (of course you must count on a democrat being in office at the time, but with all this “bi-partison” BS coming out of DC I’m not quite so sure of my conservative footing anymore)…..that and O’reilly witholding the whole Jesse Jackson rant, Whatever happened to “we report, you decide” anyway?………….

  2. Johnny McB,

    O’Reilly’s a demogogue who sometimes leans to the right.

    I don’t believe a word he says though, he thinks he’s a good source of news and Rush Limbaugh isn’t, and he thinks he ought to make ten million dollars a year and some oil company exec shouldn’t make 35 million; because he says he works in the free market and supposedly the oil guy is some evil businessman that has Americans by the balls, and like he doesn’t.

    O’Reilly’s a sancitmonious crackpot. It’s bad enough we got whack jobs on the left, but when they are on the right too, you know we are all SCREWED!

    If his head gets any bigger its gonna pop.

  3. Sake Mike,
    Believe it or not there was a time when O’reilly was quite watchable. His temper would flare in heated moments but I believe he was more honest in those days. The tide started to turn when he caved in to the lefts accusations of not being fair and balanced. The way he chose to combat this was to pussyfoot around issues he normally would of taken apart without a second thought. He of all people should know this will buy him nothing, he will still be hated by the morons he’s placating just because he’s not in their club. The only consistency he maintains lately is in his tirades against Soros, Huffington, Churchill and their ilk who he feels has personally soiled him, And even though I agree these people are beneath contempt it comes off petty and repetitious. and why give these throgs the airtime. Well before the Hillary softball session where Bill was giggly as a school girl, he had an interview with Jesse Jackson where you would think he was speaking with mother Theresa. It was sickening. Jackson was rude, stupid, and slipping up left and right in his usual twisted racebaiting ways and Mr bill totally gave him a free pass just because he “came on the factor and he knew it wouldnt be easy” what a crock, I actually juggled my schedule for the anticipated fireworks – never again. Even Bernie Goldberg gave O’reilly a lashing for what he didn’t beat jackson over the head with. I like Bernie, you always know where he stands, maybe he should host the show from here on out.

    The sad part is the factor is just about all we have in the way of news at 8:00, at least he does manage to report both ends of the spectrum, I just wish he was a little more of his old volitile self spitting and finger waving in his jousting with libs.
    I think the new polished man-of-all-seasons Bill is guilty of pandering to get guests who would otherwise not show up just to round out his image.
    I must be getting sentimental, I miss the old days.

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