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Not timely, but I loved this

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June 07, 2011 – Comments (5)

Bill O'Reilly explains to John Stossel how higher margin requirements make speculation riskier.

Also, prices aren't fixed; they're rigged. Which, I guess, is worse? I don't know.

Finally, Leah Goodman wonders how, if the current method and form of speculation are not evil, oil prices can go up while oil supplies go up. Ever heard of inflation? The overissue of currency, anyone? 

5 Comments – Post Your Own

#1) On June 07, 2011 at 10:49 PM, ChrisGraley (29.95) wrote:

Ok, I got it, rigged not fixed and it's evil.

 

What is it called when the government does it?

 

Chris,

Now hoarding onions. 

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#2) On June 08, 2011 at 10:30 AM, lemoneater (75.49) wrote:

Come again! How in the world would higher margin requirements make speculation riskier?

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#3) On June 08, 2011 at 5:42 PM, FleaBagger (28.78) wrote:

lemoneater - because they'll have more of their own money on the line, as opposed to someone else's money.

Maybe I should have eomoticon winked on that sentence. ;) 

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#4) On June 09, 2011 at 8:59 AM, lemoneater (75.49) wrote:

He's crazy. Usually people have less compunction about squandering money that doesn't belong to them. (I think that is the problem many politicians face, the "stewardship" concept: personal responsibility for the property of others is alien to them.)

The "ownership" concept means that people care more for their own property than other people's property. Home owners tend to take better care of a place than renters. Having a "vested interest" usually encourages caution.

 

 

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#5) On June 16, 2011 at 12:50 AM, FleaBagger (28.78) wrote:

lemoneater - that's actually in keeping with O'Reilly's point, but it's not exactly true. He may have misspoken when he said it would be riskier to speculate with a higher margin requirement, but I think he fundamentally misunderstands the effect of leverage on investment risk. If I put up $10 and my broker allows me to buy $100 worth of oil with it, a 10% downward move would leave me flat broke. However, if my broker only allows me to buy $50 of oil with $10 of my own money, it takes a 20% hit to wipe me out entirely, so it is only half as risky to invest with twice as high of a margin requirement. The more of my own money I have to put up for a particular dollar amount of investing, the less risk I am taking on, because the reality is that I have a certain amount of money to trade with, and if it is leveraged to the sky, that is twice as risky as it being leveraged halfway to the sky. Either way, there's the same level of vested interest, but with the the higher margin requirement, there's simply less risk. 

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