This is the Cato Daily Podcast for Wednesday, August 5th, 2009. I'm Caleb Brown.

Speculators take the heat whenever commodities or stocks make a move that defies immediate explanation, which

is to say they take a lot of heat.

But speculators deliver value to markets and help price assets more precisely.

So says Mark Calabria, director of financial regulation studies

at the Cato Institute.

I think it's important to keep in mind

the timing of the sort of popping of the housing bubble was also at a time when you saw a big change in the marketplace via two mechanisms.

There was one which is called the ABX index.

It's an index of subprime stocks. called the That didn't get developed to 2006.

And also about the same time, you had what are called K Schiller

options that you could take an option

and you could short housing prices overall.

Now, what these two mechanisms was allowed was information to come to the market prior to that time, we could all sit around and we could all tell ourselves,

boy, this housing market's kind of crazy, you know, not going to last but prior to that time there was really no opportunity

if you to actually make money for you to voice that position of this is a bubble that's about to burst. So it's very important in those and neither one of those

cases I mean clearly in both of these indexes you're not buying the house

you're not buying the subprime mortgage you're not buying the

subprime security you are taking a bet against it and you're bringing that

force to the marketplace and I think once you had what I would call that information aggregation that's out there that allowed the pessimist if you are you know in some sense really the realists about the state of the housing market to come in I think that was one of the things along with interest

rate hikes and other things that precipitated the burst into the bubble because you really did

have their mechanism for people to come in and say this is unsustainable.

...