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If puts and calls open Pandora's Box, unless a safe remedy can be found, I would ban them, had I the power.
Yet doing so if you could would open you up to the counterargument that these options are just insurance, eg why should ordinary people or companies be exposed to the full risk of owning stocks with fluctuating prices when an option can limit the potential fluctuations for its holder, and thus bring a measure of financial certainty in planning for the future? You must be able to answer this question (convincingly) in the negative or the proponents of the markets can use this argument.

In some ways this is as difficult as the gun debate, namely how do you convince people that nobody should be allowed to own guns, when the gun lobby responds by asking why should people live at the mercy of burglars and armed attackers with no protection?

If most of the financial industry were to disappear it would mostly mean that a lot of people would have to start making honest livings.
I doubt it. I believe it would involve a lot of pain and misery throughout, which I'm ok with. But clearly, governments around the world have been scared to death of the pain it would bring to their countries, which is why they largely preferred to guarantee the gamblers' debts.

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$E(X_t|F_s) = X_s,\quad t > s$
by martingale on Thu Jul 30th, 2009 at 02:54:24 AM EST
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martingale:
Yet doing so if you could would open you up to the counterargument that these options are just insurance, eg why should ordinary people or companies be exposed to the full risk of owning stocks

Why should ordinary people or companies be exposed to the full risk of devastating cyclical market mood swings?

I believe it would involve a lot of pain and misery throughout, which I'm ok with.

With the current system, there's already plenty of pain and misery throughout.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Thu Jul 30th, 2009 at 04:59:48 AM EST
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Why should ordinary people or companies be exposed to the full risk of devastating cyclical market mood swings?
Indeed, that is where serious questions must be asked about the true value of the financial services sector, and the wisdom of relying on it for pension funds, corporate finance, etc. vis-a-vis alternatives. There is also the question of the immediate consequences of decoupling by shutting large parts of it down.

With the current system, there's already plenty of pain and misery throughout.
But is it sufficient to catalise major political change? I doubt it. People are far from having lost everything they can, yet. If Russian society under Yeltsin is any indication, it can get a lot worse until someone decides to really put the screws on the financial oligarchs.

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$E(X_t|F_s) = X_s,\quad t > s$
by martingale on Thu Jul 30th, 2009 at 06:27:06 AM EST
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