history of speculation

U.S. History of Anti-Speculation Precedents Reviewed for Congress--Outlawing Stock Jobbing, Bucket-Shops, Gaming A brief history of what kinds of useful anti-speculation measures were taken in the past by U.S. Federal and state agencies, was presented at yesterday's hearing in the House Agriculture Committee held "To Review the Role of Credit Derivatives in the U.S. Economy." One of the eight witnesses, Eric Dinallo, Insurance Superintendent for New York state, began by summarizing the size of today's CDO--credit default swaps--bubble saying, "Estimates of the [CDO] market were as high as $62 trillion. By comparison, there is only about $6 trillion in corporate debt outstanding, $7.5 trillion in mortgage-backed debt and $2.5 trillion in asset-backed debt. That's a total of about $16 trillion in private sector debt. "Now, I think it would be useful to go into some of the history..." He then gave his review. Dinallo joined Congressmen in calling for more regulation in the future. * 1829. New York state outlawed "stock jobbing," an early version of short selling. * 1858. The Stock Jobbing Act was repealed in New York, under influences of the British Empire, which wanted speculation legitimized. * 1909. New York passed an anti-bucket shop law, "General Business Law 351;" other states passed similar laws. "Bucket shops" arose in the late 1900s, referring to trading in stocks on unauthorized exchanges. "They were simply throwing the trade ticket in the bucket, which is where the name comes from, and tearing it up when an opposite trade came in. The bucket shop would agree to take the other side of the customer's "bet" on the performance of the security or commodity...When their books failed, the bucketeers simply closed up shop and left town, leaving the 'investors' holding worthless tickets." "Section 351 prohibits the making or offering of a purchase or sale of security, commodity, debt, property, options, bonds, etc. without intending a bona fide purchase or sale of the security, commodity, debt, property, operations, bonds, etc. If you think that sounds exactly like a naked credit default swap, you are right. What this tells us is that back in 1909, 100 years ago, people understood the risks and potential instability that comes from betting on securities prices, and outlawed it..." * Passage of the Federal CFMA--Commodity Futures Modernization Act of 2000, enacted in December, "created a 'safe harbor' [for speculation] by 1) preempting state and local gaming and bucket shop laws, except for antifraud provisions, and 2) exempting certain derivative transactions on commodities and swap agreements, including credit default swaps, from Commodity Futures Trading Commission regulation." The CFMA overturned restrictions of the 1933 and 1934 Securities and Exchange Acts. "In sum, in 2000 as a society, we chose not to regulate credit default swaps..."