Poor Defense of Speculation

Darrell Duffie tries to revive well-worn arguments (Wall Street Journal, 24 Feb 2010) in defense of unrestrained speculation and does a disservice to free markets by leaving the door open for anti-market regulators. As a Stanford University professor one would expect him to show more awareness that certain speculative activities may well require more regulation in order to allow the rest of the financial markets to function without attracting counterproductive over regulation. Speculation may well serve a useful purpose - some times, maybe most times, but not always. For example, if speculators are allowed to buy insurance on my house (and even hire someone to burn it down in order to cash in on the insurance) then things have gone too far. But that threat exists when there is unrestricted speculation in short selling of shares, CDS contracts and distressed debt.