[ExI] Greed + Incompetence + A Belief in Market Efficiency = Disaster

[samantha]

BillK wrote:
> On Thu, Jan 29, 2009 at 10:55 PM, painlord2k wrote:
>> Market are not perfect because they are run by human beings.
>> Like governments.
>> But market are adaptable and the loop is very short, so the negative
>> feedback is able to function better. People doing bad choices pay for them
>> so they learn to don't do them again. The same is for good choices.
>>
> 
> 
> That's a restatement of the 'efficient' market theory and it just
> isn't what happens in real life. Nice and neat in theory but nothing
> to do with what actually happens.

Actually happens with government involved or without it?


> 
> Booms and busts happen because of the human 'herd' mentality. 

And commonly correct quickly.

The
> recent boom had everybody piling on because they didn't want to miss
> out on the profits everyone else appeared to be making. Like a ponzi
> scheme, it was great for those who got in early and got out before the
> boom collapsed. (Also great for the facilitators who just sat there
> raking in commissions on every trade).
> 
> The point is they were all making good choices on the way up and the
> feedback encouraged more of the same behavior. Then the house of cards
> fell in.



This one was helped by the government pouring in massively more money, 
lowering interest rates, encouraging high leverage, nearly mandating 
risky loans to name a few.  It was not just the poor irrational 
non-government monkeys getting carried away and the great wise 
government apes being asleep at the wheel.


- samantha