Forum Post: Reform Wall Street to serve the people Part 1

Which activities of city traders are damaging to ordinary people and employment?

Occupy London and Occupy Wall Street were right to focus on the stock exchanges of the two capitals as symbols of the financial systems which have grown out of control over the last 50 years. The occupy movements have a unique opportunity to propose reforms to benefit ordinary people worldwide.

The occupy movements themselves can be taken seriously if they can move on from 'there must be changes' to propose some realistic changes. Realistic proposals could be supported by many other groups and organisations.

I am not a city expert. Although I qualified as a Chartered Accountant, the complicated financial arrangements which have arisen in recent years are beyond my experience. I rely almost completely on the hedge fund manager turned philanthropist George Soros for the details of the financial crash and the remedies which must be put in place. Fortunately, in his book, 'The Crash of 2008' he deals with the lack of ethics built into the system and some of the errors in current economic teaching. He has acted as an adviser in counties like Brazil to set up an ethical system of home loan finance based on the Danish system.

It would be well to focus on one or two small things we might achieve rather than wide ranging reforms in the long term. I suggest we make a case for the end of short selling and also for the financial transaction tax. Neither is too radical and each needs international agreement before it can be implemented.

George Soros sees the market as a battle between traders and regulators. This is an interesting viewpoint as each group would claim to be acting to benefit a market which benefits commerce. He blames lack of regulation for the financial crash which has cost the public in many countries so much. Among other measures he recommends a complete overhaul of the mortgage system, an innovative energy policy and reform of the international financial system.

It is difficult to campaign for such wide ideals but easier to debate the damage which particular actions like short selling create and the measures needed to limit those actions by worldwide regulation.

Short Selling This is an illustration of short selling from the Wikipedia article on the subject Profitable trade Shares in C & Company currently trade at $10 per share.

1. A short seller borrows 100 shares of C & Company and immediately sells them for a total of $1,000.
2. Subsequently, the price of the shares falls to $8 per share.
3. Short seller now buys 100 shares of C & Company for $800.
4. Short seller returns the shares to the lender, who must accept the return of the same number of shares as was lent despite the fact that the market value of the shares has decreased.
5. Short seller retains as profit the $200 difference (minus borrowing fees) between the price at which he sold the shares he borrowed and the lower price at which he was able to purchase the shares he returned.