Chancellor Merkel basically unilaterally outlawed naked trading. While simplifying the description is always risky, it basically amounts to this: Trading in shares that you don't own. It gets more twisted, but the scenario that she wants to eliminate is where traders bet that the price of a stock will go down based on short-selling shares that they don't have. It has made markets furious. And there is a lot of sturm and drang about how this will have serious down side consequences. And the Chancellor is not garnering any applause in Germany.
But she has my applause and here is why: At the base of the practice, there is an economic/financial gain to be had based on -- nothing. The trader has not increased some net worth because he didn't have any worth to begin with. The transaction garners income with no equity or assets. The trader has no skin in the game, so to speak.
Imagine going to the casino and placing bets with money you don't have. And betting that the bet will lose. And making money off that transaction.
In my opinion, the world cannot build wealth without some core essential asset being traded and increased in the process. In this case, the trade is only for money that is being literally created out of nothing. Money is a representative value, it doesn't have value in and of itself. Trading dollars for euros, for example, is a pointless activity unless there is a fee. And the fee by its nature devalues the currency. On the other hand, economic markets that are driven by trade of goods and services have at least the opportunity to yield a genuine increase in value as represented by an increase in money.
Think about it. You go to market with a truck full of eggs. The value of your effort in producing them is $1000. You come home with $1500 (and the truck). The people in the market do the same, creating wholesale, trade and retail markets along the way. Each transaction yields income because the value of the eggs increases. In the end, a chef delivers to market a truck full of quiche and comes home with $10,000. The eggs obviously have served to increase his wealth. The chef paid $5000 for his eggs not $1500. But it doesn't matter. The point is that each time the eggs change hands, some value has been added, whether it is transportation, convenience, preservation, packaging, etc.
OK, now take traders who never actually own the eggs. Nor do they own the money that has exchanged hands. What they are doing is betting that the price of eggs will fall between point b and the chef, thereby erasing the money making in the transaction. The chef doesn't care because his eggs are cheaper. It is you, who still pays $1000 to produce a truck full of eggs, but is now only getting $1100 or worse $500 back. And someone with no financial interest in the eggs made money off that deal. Isn't that your money, in essence? Did they not take the value from your eggs and transfer them into their pocket?
Merkel doesn't like this kind of trading because the traders can actually manipulate the market so the prices go down, then reap the rewards without ever owning the equities. Sweet deal for them. The money still represents the value of something that now has less value, and that money is coming out of someone's pocket. And the traders had influence on that happening, so basically are dipping into some other persons equity.
Money really doesn't fall out of the sky, folks.
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