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"Damping" - or "The way to Avoid a Bread Shortage."

Let's imagine that you operate a bakery and the supply of flour available to you is limited. You could use it to make 100 loaves of bread per day, which you sell for a small profit each, or you could bake 1,000 hamburger buns and open a fast food restaurant next door, increasing you profits substantially. Which option would you take? Rare indeed is the boss who would be influenced by "the public good" and continue to bake nothing but plain loaves.

Now let's imagine a bank, with finite cash reserves. Do you use the cash to make long-term loans at a small profit, or do you "invest" it by placing short term bets on the stock market. No matter how much pious talk there might be of supporting enterprises, it is a logical conclusion that banks will seek to make the most money possible. Unless and until the enticement of speculating on stock markets is curtailed, financial institutions will continue to gamble, and continue to describe it as "investment activities". What is needed is a mechanism to make speculation far more risky, yet retain the basic attraction of a true investment.

Here's where we need another tale. Almost 100 years ago George Westinghouse, one of America's greatest inventors, had retired and was on his farm. He had bought a motor car and was driving it rapidly on his bumpy farm road when he was thrown out of his seat. Being Westinghouse, he set to pondering the problem, and soon realised that although springs were essential in order to soften the ride and worked well at slow speeds, they had a habit of over-reacting when rapidly compressed and released. What they needed was something to dampen their tendency to over-react. George went to his workshop and built the world's first shock absorber, which to this day Americans call "dampers". They don't stop the springs from working, they simply put a drag on their movement.

A modern stock market has instant communication all over the world. Prices fluctuate at dizzying speeds, pushed along by computer programmes designed to give speculators an edge. They tend to over-react to stimuli. Now imagine a stock market with dampers. Stocks and shares would still be able to rise and fall, but less frenetically. Long term investors would still be able to decide where to place their money. However, speculators would have a far harder time trying to gamble on short term fluctuations. If the attraction of short term speculation fell, financial institutions would probably seek alternative risks such as providing venture capital. Money achieves nothing if it is left idle, so they might even become willing to heed government pleas that they should set aside more cash - alias "bread" - to provide mortgages and loans to struggling small businesses.

So how could a government dampen the stock markets under its jurisdiction? My idea is simple. Ensure that anyone buying shares is not allowed to re-sell them, anywhere in the world, for 48 hours. Likewise, anyone selling shares could be forbidden to buy the same stock for 48 hours. Anyone thinking of gambling on short selling the market, for example, would know he would be unacceptably exposed for two days, during which time other "investors" would be out to fleece him. Under such legislation long term market trends would continue, but there would be far lower risk of being thrown out of one's seat, so to speak.

Unfortunately, imposing such a rule to dampen markets would meet fierce resistance from those in the financial sector, many of whom would be forced to seek occupations that paid realistic salaries. Our answer should be to remind them that ultimately it is we, the taxpayers, who have had to pick up the tab and who are still expected to provide a safety net. Only in the financial world have they been able, so far, to ignore the proverb ...
He who pays the piper calls the tune.

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