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@duke wrote:@econ wrote:some people seem to say that credit is not good . but do you know that all businesses run with credits. not only business but countries it self run with huge debt.
We all use credit. We build houses on loans, buy cars on loans, pay for food by credit card. We wouldn't be able to them if we didn't have credit.
When banks give a loan. They check whether you have a steady income, are you going to die before the settlement, force you to buy insurance, check whether you have other loans even add up the credit card credit limit. Credit should be controlled. Imagine allowing brokers to give credit. That is like wadurata dali pihiya dunna wage. That is what happened.
Problem is when you have uncontrolled credit like in CSE. What we had was Wal Buru credit.
http://www.ft.lk/2011/07/26/market-in-mayhem/
according to that brokers were allowed to give 10 times thier capital in credit, but at it's peak they had given only 3 times.
The problem here isn't credit per say, but what to do with credit. The T+3 or 5 seems really stupid to me. I've never used them because for you to close a deal successfully in that space of time is near impossible unless the market is in raging bull mode. Broker credit should be something like T+15. The reason brokers were extending T+3 beyond the +3 stage isn't obviously greed. It's better for brokers to see their clients buy and shares more often. the reason is that practically trades take longer to close. Secondly, while i'm all for the SEC regulating credit they need to be practical about it.
It's pretty obvious that T+3 or +5 has failed so the thing to do is put a cap on how much brokers can lend as a company and then extend T+5 to T+15 or T+30. 30 at a higher interest rate than 15.
