Using other people's money is the foundation of most business. When you loan money, you are essentially renting it. When you borrow money you pay the rent (interest) and hope to use it to make a profit. Money is just a tool.

The bottom line is that many of the people who were in the market, should not have been there in the first place. They did not understand it and could not afford the downside risk. All they could see were the dollar signs and while the run was on, everyone was making money. They did not understand why, but that was irrelevant as their portfolios skyrocketed.

The regulations were initially in place to stop an economic crisis like the one we just came through, but not enforced. Had Glass-Steagall not be destroyed, we would probably not be having this conversation.

As for compensation and severance packages, if they were mutually agreed to by the shareholders and the recipients, what's the problem?

You hit the nail on the head. The repeal of Glass-Steagall was a mistake. Traditional Banking functions are quite different than Investment Banking and each has a different business model.

Traditional banking has lower leverage conservative returns, with little to no risk. Potentially higher return is the reward for investment bankers' high leverage risk taking. As federal banking authorities began to relax regulations since the 1960's allowing banks to increasingly become involved in securities, the result, if not inevitable, was at least predictable. In 1998 regulators allowed the affiliation of Citibank with Solomon Smith Barney and Glass-Stegall was essentially dead. Gramm-Leach-Billey in '99 was just a formality.

The derivative debacle could never had occurred if Glass-Steagall had been in effect and ENFORCED. One way to destroy a law is simply not to enforce it. (Just refer to the current DOJ). You will not hear banks complaining. They've made billions on this fiasco.

So what would be the solution to the problem of lending institutions trading other people's insurance as you put it? Would you reinstate the Glass–Steagall Act? I see this more as a law by which the companies have to abide as opposed to regulation which we all here know is a fallacy. I am so torn on this issue.

Yeah I agree, the thumbs up portion of the title was a bit in bad taste. I will omit such things in the future. Thanks for the input.

Nietzsche - a good reply. However, high speed trading and derivatives are real problems connected I suggest to traders using 'other people's money'. Not as bad as governments doing it as there is more choice with those who put the money in, but the amounts are so large -the herd instinct at work- that those not connected get hurt. The traders (gamblers) get big bonuses if they win, and big severance packages if the trade and their company collapses. Should governments bring in more regulations? Recall 'the cure is worse than the disease'.
So, I agree with the proposition but do not try to fix it and bring in something worse.

In the sense that the purchase of stock makes you a part owner and indicates that you feel a company is worthy of investment, the stock market is a wondrous thing.
The problem is when the stock market becomes the game itself - in which stock is bought and sold on the basis of part-truths, timed announcements, etc and is all about short term gains regardless of the quality of the company in which the stock is issued.

The problem is not the trading, no matter how fast it occurs. I say let people buy and sell what they want for whatever they mutually agree to.

The problem is leverage. You are able to trade options with little or no money down. The margin requirement is based on the base price of the security at time of trade. If the price moves against you, you have to ante-up more money. Your risk on uncovered securities is theoretically limitless. (Uncovered means you don't own the actual security, just an option to own it or obligation to sell it at a certain price during a specific period of time.)

When used as insurance, as they were intended, options are an important part of money management. When you speculate without proper due diligence however, you can not only personally default, but you can start a chain reaction because you were someone else's insurance. This is what caused the economic collapse - an assumption that the "insurance" on the mortgage securities would be honored. They weren't!

I find this topic fascinating. I would be very interested to hear the thoughts of those here in The Gulch regarding the ~recent~ rise of high speed trading and related trading practices.
This aspect does not even touch on the notion of corruption. The question is interesting from a value-for-value perspective.
I recently read Dark Pools http://www.amazon.com/Dark-Pools-High-Sp... and find the recent history of the markets an endless source of fascination.

It is actually very difficult to cheat in the US markets such as the NASDAQ or the New York Stock Exchange. This is why all that foreign money comes here to play. America has a reputation for integrity in this area. Can a fraud still be perpetrated? Of course, but fraud can happen in any transaction.

The "stock market" is nothing more than a secondary source of capital for business. Instead of borrowing from traditional sources, where you have to tie up assets for collateral, you can offer equity ownership in your company through shares on the open market to raise money. The stock buyer, like the gold or real estate buyer speculates that prices will rise and shares can be sold at a profit.

The stock market is what makes America possible. Realize that this idea of speculative public investment is what financed the pilgrims and many of the original colonies in America. No bank will ever take the same risk a speculator will.

rigged. The market and your desire for "thumbs up." But yes its WAY OUT OF LINE! Manipulators like Soros & Friends will tank it if Romney wins and blame it on the "CONS" to re-take and continue the Socialist take over (aka: fundamental transformation) of our Republic. OK I'll Thumbs up yours if you Thumbs up mine!