Wednesday, May 19, 2010

Not So Short

Germany knows it's powerful in Europe. It knows it holds sway over the euro, and it knows that it has a lot to lose if the crisis in Europe doesn't pan itself out. However, the country may have gone a bit too far with its unannounced, unilateral decision to ban naked short selling. Short selling, for those who don't know, is when an investor "sells" a stock he does not own. Then he goes and actually buys the stock he "sold" and delivers it to the market/person he sold it to. Essentially, if you expect a stock price to fall you would short it and hope to reap the benefits.

Angela Merkel made a statement about the decision. All I have to say is, "At least she's honest." She said, "If the euro fails, then Europe fails. If we succeed, Europe will be stronger." Yes, Germany, if you do succeed, Europe will be stronger. However, there's no reason to go about this like a lone gunslinger. Understandably, some countries (Read: Greece, Spain) have shown that their contributions to the crisis will not be positive ones. Thus, I could see why Germany might be fed up with its fellow nations. The Greece bailout took a lot of bickering to get passed until Germany finally decided to give in.

The plan to ban short selling may backfire, unfortunately. Other nations, notably France, openly showed their disappointment not necessarily at the decision, but at the choice not to inform other countries of the plan. Markets in Europe were down at least a couple percentage points, and the euro lost around a cent to the dollar. It seems the backfire has already begun, let's see if the end results are better then the current ones.

Wednesday, May 12, 2010

Mean Old Mr. Dealer

As the debate over financial regulation rages on in Washington, there is an odd side debate being battled over there, too. Included in all this talk about bank reforms and credit rating agencies is a discussion about used car dealers. The question specifically deals with these sellers that are located near military bases. Here's the Pentagon's argument. They say that have these dealers on the outskirts of the bases interferes with the readiness of the troops. If somebody buys a car and gets a bad loan, then their financial situation will impair their readiness for war. I'm no military expert, but this seems like something of a bogus argument. Are the bars and barbershops around the bases much less distracting? I can see how the financial commitment of a car can put a lot of pressure on someone, but quite frankly, that's life. Non-military people deal with this all the time when they buy a new car, albeit their jobs are much less stressful than fighting wars. However, if someone is trained to be a soldier, I think he or she can handle a bad car loan. It just does not make sense to me. Instead of trying to force dealers away from bases, why not have some internal regulation barring soldiers from dealers?

The main point that's trying to be made is that most of the car dealers who set up shop outside of these bases are "shady" as the New York Times put it. Regulating dealers that purposely trick people into bad financing agreements is a good idea. Saying it interferes with troop readiness is a bad argument for that good idea. Quite simply, we have the same sort of practices with car loans as we did with sub-prime mortgages. These sellers are taking advantage of people who do not fully understand the deals they are making. I think the blame lies on both sides of these deals. As I just mentioned, these shady and immoral practices should be regulated and stopped. At the same time, however, being uneducated about your own financial well-being is no excuse for being tricked by a car dealer. It is incumbent upon people to learn a little bit about personal finance, so mean old Mr. Dealer can't take their money.