5 ms·

No kidding, it's dangerous. It has gotten so far out of control that even the decision-makers at banks are afflicted by this problem -- else the sub-prime mort

No kidding, it's dangerous. It has gotten so far out of control that even the decision-makers at banks are afflicted by this problem -- else the sub-prime mortgage crisis would never have happened. Without middlemen (banks) fundamentally failing to understand basic economics, we wouldn't have a crash.

randallsquared 19y ago
> Without middlemen (banks) fundamentally failing to understand basic economics, we wouldn't have a crash. That isn't necessarily the case. There could be situations in which everyone does the rational thing for themselves, and we get a worse result for everyone anyway. Whether or not a given market (with regulations applied, etc) is such a situation is left as an exercise for the reader... :)
- mixmax 19y ago
  The core of the problem is that economic theory, and hence decision makers, stipulate that markets are rational. This, however, is clearly not the case if you look at the data. Last tuesday the NASDAQ fell by (if i remember correctly) 3%. Since stock price is a direct product of valuation a lot of companies were supposedly worth 3% less than they had been the day before. And none of them came out with any devastating news, fired employees, or had any other problems: they were the exact same companies as the day before, yet their value had dropped markedly. This clearly shows that markets are not rational... Markets are like any other endeavors involving humans: driven by fear, greed, stampeding and other human emotions.
  - daniel-cussen 19y ago
    Wait a second. Just because most of these companies did not produce news and changed value does not show the market is irrational. The price of stock can be affected by a lot of things, like the Fed interest rates, otehr stock prices, housing, etc. If stockholders suddenly think they can get a better ROI on housing than in NASDAQ (not the case anymore, but bear with me) they'll take their money out of NASDAQ and put it in housing. Even if the NASDAQ companies did not change over the course of these events, their prices still dropped for a rational reason: investors could get a better deal elsewhere. The NASDAQ might have dropped because the general economy looked bad, so US consumers might buy fewer goods from NASDAQ companies.
    - mixmax 19y ago
      Agree, it is not all black and white, and by no means simple. And that is the core of the problem. The markets are so complicated that noone really has any idea what will happen. The reason for this is that there are a large number of players influenced by each other, noone has an overview, and basically noone is at the helm steering the whole thing. The reason I disagree with classical economics is that it very often gets things wrong, and can only predict major trends after they have happened - which is not much of a prediction. I think that economists need to break away from the classical models and see the economy for what it is: a chaotic system. Start lookig at emergence, negative and positive feedback loops, etc.
  - dangph 19y ago
    The system is the solution By Donald J. Boudreaux http://www.pittsburghlive.com/x/pittsburghtrib/opinion/columnists/boudreaux/s_488165.html http://www.pittsburghlive.com/x/pittsburghtrib/opinion/colum...

randallsquared 19y ago

> Without middlemen (banks) fundamentally failing to understand basic economics, we wouldn't have a crash. That isn't necessarily the case. There could be situations in which everyone does the rational thing for themselves, and we get a worse result for everyone anyway. Whether or not a given market (with regulations applied, etc) is such a situation is left as an exercise for the reader... :)

mixmax 19y ago
The core of the problem is that economic theory, and hence decision makers, stipulate that markets are rational. This, however, is clearly not the case if you look at the data. Last tuesday the NASDAQ fell by (if i remember correctly) 3%. Since stock price is a direct product of valuation a lot of companies were supposedly worth 3% less than they had been the day before. And none of them came out with any devastating news, fired employees, or had any other problems: they were the exact same companies as the day before, yet their value had dropped markedly. This clearly shows that markets are not rational... Markets are like any other endeavors involving humans: driven by fear, greed, stampeding and other human emotions.
- daniel-cussen 19y ago
  Wait a second. Just because most of these companies did not produce news and changed value does not show the market is irrational. The price of stock can be affected by a lot of things, like the Fed interest rates, otehr stock prices, housing, etc. If stockholders suddenly think they can get a better ROI on housing than in NASDAQ (not the case anymore, but bear with me) they'll take their money out of NASDAQ and put it in housing. Even if the NASDAQ companies did not change over the course of these events, their prices still dropped for a rational reason: investors could get a better deal elsewhere. The NASDAQ might have dropped because the general economy looked bad, so US consumers might buy fewer goods from NASDAQ companies.
  - mixmax 19y ago
    Agree, it is not all black and white, and by no means simple. And that is the core of the problem. The markets are so complicated that noone really has any idea what will happen. The reason for this is that there are a large number of players influenced by each other, noone has an overview, and basically noone is at the helm steering the whole thing. The reason I disagree with classical economics is that it very often gets things wrong, and can only predict major trends after they have happened - which is not much of a prediction. I think that economists need to break away from the classical models and see the economy for what it is: a chaotic system. Start lookig at emergence, negative and positive feedback loops, etc.
- dangph 19y ago
  The system is the solution By Donald J. Boudreaux http://www.pittsburghlive.com/x/pittsburghtrib/opinion/columnists/boudreaux/s_488165.html http://www.pittsburghlive.com/x/pittsburghtrib/opinion/colum...