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

painlord2k at libero.it painlord2k at libero.it
Fri Jan 30 16:38:57 UTC 2009


Il 30/01/2009 10.04, BillK ha scritto:
> 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.

Where in real life I can find a market more regulated by laws apart the 
banking sector? Or the medical sector?

> Nice and neat in theory but nothing
> to do with what actually happens.

Please, point us to a service a government is able to sell better than a 
private enterprise without resorting to the use of the force to sell it 
or keep other sellers away.
Or a market that is not heavy regulated.

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

The "herd mentality" is good, because we look at what other do, what are 
the outcomes and repeat what they do, if we think the outcomes are good.
In a market, one free of government interference, the outcomes are 
strictly correlated with the actions. If the actions of others are 
wrong, we are able to see them for what they are in a short time (few 
hours, day or years) where in the same happen with the government we see

Boom and bust are a feature of the economy, because the existence of:

1) fractional reserve banking
2) fiat currency
3) legal interferences with the market

> 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).

In the recent boom, the causes were:
1) government forcing the banks to loan to people without credit (to 
avoid "redlining")
2) government forcing FM&FM to securitize the bad assets of (1)
3) the FED lowering the rate to nil for a few years, then rising them.

The government did it because they are "incompetent" or simply because 
they are interested in please their constituency? The span of an elected 
official is 2-4 years, so what will happen after is negligible; more 
than so if can be unloaded over "bad, evil, capitalists".


> 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.

Suppose you are right.
The government give them a bailout of a trillion of $.
Why do they need to change their behaviour?
They acted so because they expected to be bailed out if problem arisen.
This is what the taxpayers are for.
To bailout the friends of the governments.

Mirco






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