This is an allegorical story told by one
of my aunt’s husband on how certain players manipulate the market. A certain
unscrupulous businessman sets up a company with the objective of catching all
the monkeys in the wild. The catching operation is successful to the point of
removing up to 90% of the monkeys in the wild. The businessman then advertises
to the public that he would be buying up any of the remaining monkeys in the
wild for a handsome sum if anyone is willing to catch these monkeys and sell it
to him. Soon, there are people from the public who pay heed to the
advertisements and set out catching the remaining 10% of monkeys in the wild.
They are successful too and sells the businessman the monkey for the generously
offered sum. Now, there are no more monkeys in the wild, and the businessman
sends out another advert offering to pay an even greater sum for any monkeys in
the wild that the public can get hold of. Concurrently, the businessman sets up
another anonymous company selling the monkeys that his first company had caught
at a price lower than what he had offered to buy the monkey from the public
for. Certain greedy traders in the public decide to seize the opportunity to
buy the monkeys at the lower price offered by the company, and resell them to
the businessman at the higher price. They were in for a rude shock to discover
that the businessman was nowhere to be found after they had bought from the
company all the monkeys. These greedy traders found themselves with all the
monkeys on their hands, but with no one else willing to buy the monkeys from
them.
The fact of the matter is that the
unscrupulous businessman had duped the public into buying the worthless monkeys
by generating a false demand for them in the market, and then enticing the
public to buy stocks of monkeys from a company linked from him.
The allegorical tale about market
manipulation involving monkeys could similarly involve other form of tradable
assets within the market, such as shares or commodities. There are probably
syndicates in the real world who pull off more complex versions of the scheme.
I wonder how authorities regulate markets to stem such unscrupulous practices.
There are law books out there on financial regulation which I can read if I
have the time.
No comments:
Post a Comment