Clark Ho
  • Clark Ho
  • Philadelphia, PA
  • United States

MBA Student - Expected Graduation 2012, Drexel University

This conversation is closed.

Why can't government hire traders to hedge against hedge funds on wall street and redistribute wealth to people?

If there are hundreds and thousands of traders out there, and they're there to trade, make huge profits and high bonuses, why doesn't the government hire them? The government is deep in debt and the poor are getting poorer, why can't the government, or an organization,hedge against hedge funds? Do exactly the same as the firms in wall street do, and donate the profits to cut government debts, rebuild communities, build schools. Why can't we do that?Why isn't anyone doing that?

  • Oct 29 2011: "Why isn't anyone doing that?"
    Because it would be horribly wrong.

    The United States government was not established to gamble with tax payer money. (Regardless of if it sometimes seems that way)

    This would be worse than if the government were to print money and pay off debts with that value-less paper. To an extent a little of that has been happening and thus the reason for increasing inflation.

    Honestly, the best way to decrease debt is to either increase taxes or cut spending. Those are the only real solutions and each party has picked one already. (Though neither party is willing to increase taxes or cut spending to the amount required.)
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      Oct 29 2011: I agree that it is either cut spending or increase taxes, but i was thinking that, every single governments would hold foreign currency and different assets anyway, and if the value of the assets that they hold would fluctuates.

      But i 100% agree with you that it would seem "wrong" to trade with tax payers money. But i just thought if the core reason, that the wealth distribution has gone crazy, and one major reason is due to hedging and financial markets, and if they know the reason for it, i am sure there are ways to solve this problem.

      Just seems a bit weird to me that, they bail out the banks then the banks pay billion dollars of bonus, it was just shifting tax payers money to the people that works there then......
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      Oct 29 2011: I just thought, it seems to make sense because, the large firms gamble with their shareholders money, and they made a huge loss, and the government bail them out. So in a sense it means that the government paid for someone else's gamble( a gamble that they had no control over). Which is probably worse than a gamble itself.....i guess...
      But increasing tax might slow the consumer sector, and cut spending reduces the quality of life in the country. but i guess there is no perfect solutions....
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        Oct 30 2011: Shareholders willingly invested their money into these companies. They should know beforehand what the company will do with their money and how it uses its income. Tax payers do not have a choice whether to 'invest' with the government or not. The government can not act like a company because it is not a company and its job is not to make money or to hedge its investments, its job is to take care and protect the people in that country.
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          Oct 30 2011: haha that is totally different angle from me, very intriguing. My view was that, if the government is not a company, why should they bail out those companies, when the tax payer do not have a choice.......... and if government can profit from hedging then those profit can be put into the social welfare system...... like a lot of non profit organization do with their investments
      • Oct 30 2011: The United States Government should not have "bailed out" these companies. Many economists and politicians thought this was wrong.

        However, the argument was made that these companies were "too big to fail" and that the collapse of any single one would cause some sort of chain reaction that would cause the economy to spiral downward into a deep depression if not complete collapse.

        I think the "Too big to fail" argument was complete alarmist lies and distortions aimed at creating an illusion that by bailing out these companies the government could prevent a logical market correction. Regardless of if a depression / recession occurred, political candidates could swoop in and state that "It would have been worse if we did not bail out these companies." (There is no way to prove that the bail outs had any affect in preventing a chain reaction)

        In the end, the bail-outs were another wrong committed against the people by the very representatives the people elected to run their country.
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          Oct 30 2011: I disagree completely. Without the bailouts many people who had loans from these banks would lose their homes. The housing industry makes up 1/3 of the US economy and provides 1/3 of the jobs in America. These banks were to big to fall and if they did fall 1/3 of the economy would be completely wiped out along with thousands unemployed and homeles..
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    Oct 30 2011: Clark,

    Ayi yi yie. Sounds bit Robin-hoodish.

    Problem is: rebuilding society on hedge funds is a blueprint for systemic collapse.

    Like repairing bridges by plastering over cracks in the concrete. Sooner or later it all comes falling down. Yet, again.

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      Oct 30 2011: Haha that was my first vague idea, robin-hood of the hedge fund market. But then thinking about hedging with leverage seems a bit uncertain. But i am sure there are other ways out,instead of just spending cuts and tax increase. Just seems too inflexible and it doesn't solve the core problem of the situation. Financial institute will still hedge to make money, small individual still buy in and lose money because of the power of large firms. And money keep shifting to the a small group of people.

      The poor will be poorer, the money shift to a small group of people, and the government have to bail out the small group of people when they messed up from the tax payer's money, so the shift of money worsen.

      Somehow need a robin hood like Warren Buffet to change the tax system. 1% more of tax from the top earners will probably be same amount of tax payed by thousands of average people.
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    Oct 30 2011: The US treasury holds 79 BILLION dollars. $79,000,000,000 is enough money to buy out companies, drive a companies stock prices up or plummeting down, it is enough to control the markets whenever they need to. There are two main problems with this.

    One, it is completely and utterly wrong to use tax payers money to influence the stock market. Citizens must pay taxes and if the US government were to use that money to become a player on wall street, than riots and protest would fill the streets demanding their money go to fixing the economy. (Easier said than done) And even if the citizens were ok with this, should the government be that involved in a companies sucsess/demise?

    Two, the US government already does this. They buy US bonds, issue US bonds, sell US bonds, buy foreign bonds, and sell foreign bonds. The government also makes other investments such as loans to companies that may need it.

    So, while it was a good idea for the government to cut its debt, it would pu the government in a situation where they would be directly involved with a companies sucsess along with using the tax payers money on investments that may not work out resulting in more taxes.
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      Oct 30 2011: I was thinking about this because, if the government bailed out large banks, and companies because the banks or companies record losses. So it means the government is using tax payers money, to pay off bad investments from private companies....... is it worse??? Or are there other reasons for it.

      I know people would say because these companies employs lots of people and it will hinder lots of other companies. But if they have to bail out those companies with tax payers money, wouldn't it be better to hedge against them, and bail them out with the profit from the hedge?? Just a thought that occured in my mind, thats all, just don't really see why the government would unconditionally use tax payers money to bail them out, but somehow don't require them to help them to cut debt when they are paying out bonuses......
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        Oct 30 2011: The reason why the government bailed out banks like Freddie May and Freddie Mac is because they provided many many many loans to American people. If the company went bankrupt people would lose their house, they would have to sell at all time lows, the monthly payment would go up, it would be a complete mess along with all of the jobs that would be lost. There are regulations for companies that were bailed out by the government to bonuses and salaries for executives and ceos.