Monday, May 27, 2013

Policies of Exploitation

Policies of Exploitation

Two seemingly unrelated items caught my attention this weekend.  One involves the expansion of Medicaid, and the other concerns options trading by retail investors.  As I pondered these matters, it dawned on me that they are very much related.

Turning first to health care, a number of states have opted out of the Medicaid expansion included in the Affordable Care Act.[1]  The opt-out became possible when the Supreme Court upheld the overall constitutionality of the Act, but struck down provisions that penalized the states if they failed to expand Medicaid.  As a result, a large swath of the poorest Americans, especially in the south, will remain uninsured even after the Affordable Care Act is fully implemented.  Ironically, these states have taken this decision even though the federal government is prepared to pick up most of the tab.
 
Fund Blends (1996)
On the brokerage front, Schwab, Fidelity, TD Ameritrade, and other firms are pushing their retail clients into options trading.[2]  As the stock market rises, the brokers are plying clients with advertisements that offer “sophisticated” tools designed to help them make lots of money through options trading.  This campaign is sweet music to the ears of professional traders.  It’s like inviting novices to sit at the same gaming table with professional card players.  The professionals will make a lot of money and the house (brokers) will clean up as well.  The retail investors who fall for the options pitch are going to lose.

The failure to expand Medicaid and the attempt to woo retail investors into options trading share a common characteristic: exploitation of the least able.   Equitable treatment and fairness seem to have no place in either the states’ decision to exclude the poor from insurance coverage or the business decision to woo retail investors into trading options. The poor are being grossly exploited so the middle class can hang onto their entitlements and the wealthy can enjoy their tax breaks.  Retail investors are being exploited because there’s nothing like options trading to generate profits for a brokerage firm.  While Schwab and Fidelity compete to offer the least expensive stock trades, the competition is far less intense when it comes to options.  

Unfortunately, our economy and government are increasingly rife with policies that take advantage of the weak.  The failure to expand Medicaid and the push to ensnare retail investors in options trading are merely the latest examples.



[1] http://www.nytimes.com/2013/05/25/us/states-policies-on-health-care-exclude-poorest.html?hpw&_r=0
[2] http://www.nytimes.com/2013/05/25/business/growth-in-options-trading-helps-brokers-but-not-small-investors.html

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