Government Had No Reason to Intervene in Stock Market Turbulence

Interventions tried by the Chinese government to curb sharp declines in the country's stock markets are drawing unusually pointed criticism from analysts. “The bottom line is this: Only a systemic risk that threatens financial stability justifies a government bailout,” notes Ling Huawei for Caixin Online. “And the intervention raises a thorny question: Who takes the blame if the securities firms suffer losses because they had to make investments against their better judgment?” Concerns run high over falling stock prices; high levels of margin trading, or investors borrowing money from a broker to purchase stock; high-risk loans that depend on stock as collateral; and pressures on large institutions to hold stocks to maintain a price level in stock indices. Excessive interventions and protections disrupt stock prices, and investment turns into gambling over what the government might try next. – YaleGlobal