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> Whether or not you like the US stock market, it is fairly transparent and not run by the whims of the government. I wish I could believe this, but after year

by cubano 11y ago

> Whether or not you like the US stock market, it is fairly transparent and not run by the whims of the government. I wish I could believe this, but after years of federal debt fueled Quantitative Easing and implicit guarantees of "too big to fail", I've stopped believing this is true.

marcusgarvey 11y ago
Says former Fed governor Fisher: "We frontloaded a tremendous market rally to create a wealth effect ... The Federal Reserve is a giant weapon that has no ammunition left." http://globaleconomicanalysis.blogspot.com/2016/01/former-dallas-fed-governor-richard.html?m=1 http://globaleconomicanalysis.blogspot.com/2016/01/former-da...
andrewvc 11y ago
This is true to SOME extent, but the amount of interference in china is on a whole other order of magnitude. For instance, read this July piece from the Guardian: http://www.theguardian.com/world/2015/jul/16/why-chinas-stock-market-bubble-was-always-bound-burst http://www.theguardian.com/world/2015/jul/16/why-chinas-stoc...
jfoutz 11y ago
I think, 'transparency' in this sense might be more akin to 'predictability'. If you can count on the big players to act a certain way, even if that's the most evil thing possible, you can make a decision with confidence. if they're out there doing random stuff all the time, it's really tough to say, 'this is the right choice'. I just finished Too Big to Fail by Sorkin. From that point of view, everyone was facing something that had never happened before, so it's hard to be predictable in that case. One day, they push J.P. Morgan to buy Bear Sterns. One day they let Lehman Brothers die. One day they nationalize the banks. It was just all over the map. On the other hand, they were facing something new, never really thought about before. It's hard to have policy for rare events, so they just kind of tried stuff and iterated on what worked. It's kind of a testament to the quality of the US market that you can say for sure, 'i don't want any of that', because of a specific reason. That's very different, and far more valuable than 'i don't want any of that because it's incomprehensible'.
- cubano 11y ago
  Right...but a real problem is, or course, moral hazard, ie "if they did it before (bailed us out), they will almost surely do it again, so what incentives do we have to alter our risky behaviors that are currently making all of us rich?" All I was trying to point out is that the idea that the US market is devoid of any government manipulation and shenanigans is fiction at best.
  - jfoutz 11y ago
    The assistance had a pretty hefty price. First, the weakest died. it's not like the fed jumps in at the first sign of trouble. Second, companies had to take losses first. They take the first billion (or more) before any fed help kicked in. Third, they got nationalized. Nobody wants that, and everybody bought the government back out as quick as they could, or died. I don't want to dismiss your argument, moral hazard obviously had an effect - http://www.federalreserve.gov/pubs/ifdp/2012/1043/ifdp1043.pdf http://www.federalreserve.gov/pubs/ifdp/2012/1043/ifdp1043.p... But, again, the beauty of our system is we have an idea about how the major players will act, it's not totally opaque and unpredictable like China. If there's another little bubble, it's pretty clear the fed will just let that industry die. If it's huge, at least some players will die. The rest, can either suffer on their own, or suffer as a nationalized entity.

by cubano 11y ago

marcusgarvey 11y ago

Says former Fed governor Fisher: "We frontloaded a tremendous market rally to create a wealth effect ... The Federal Reserve is a giant weapon that has no ammunition left." http://globaleconomicanalysis.blogspot.com/2016/01/former-dallas-fed-governor-richard.html?m=1 http://globaleconomicanalysis.blogspot.com/2016/01/former-da...

andrewvc 11y ago

This is true to SOME extent, but the amount of interference in china is on a whole other order of magnitude. For instance, read this July piece from the Guardian: http://www.theguardian.com/world/2015/jul/16/why-chinas-stock-market-bubble-was-always-bound-burst http://www.theguardian.com/world/2015/jul/16/why-chinas-stoc...

jfoutz 11y ago

I think, 'transparency' in this sense might be more akin to 'predictability'. If you can count on the big players to act a certain way, even if that's the most evil thing possible, you can make a decision with confidence. if they're out there doing random stuff all the time, it's really tough to say, 'this is the right choice'. I just finished Too Big to Fail by Sorkin. From that point of view, everyone was facing something that had never happened before, so it's hard to be predictable in that case. One day, they push J.P. Morgan to buy Bear Sterns. One day they let Lehman Brothers die. One day they nationalize the banks. It was just all over the map. On the other hand, they were facing something new, never really thought about before. It's hard to have policy for rare events, so they just kind of tried stuff and iterated on what worked. It's kind of a testament to the quality of the US market that you can say for sure, 'i don't want any of that', because of a specific reason. That's very different, and far more valuable than 'i don't want any of that because it's incomprehensible'.

cubano 11y ago
Right...but a real problem is, or course, moral hazard, ie "if they did it before (bailed us out), they will almost surely do it again, so what incentives do we have to alter our risky behaviors that are currently making all of us rich?" All I was trying to point out is that the idea that the US market is devoid of any government manipulation and shenanigans is fiction at best.
- jfoutz 11y ago
  The assistance had a pretty hefty price. First, the weakest died. it's not like the fed jumps in at the first sign of trouble. Second, companies had to take losses first. They take the first billion (or more) before any fed help kicked in. Third, they got nationalized. Nobody wants that, and everybody bought the government back out as quick as they could, or died. I don't want to dismiss your argument, moral hazard obviously had an effect - http://www.federalreserve.gov/pubs/ifdp/2012/1043/ifdp1043.pdf http://www.federalreserve.gov/pubs/ifdp/2012/1043/ifdp1043.p... But, again, the beauty of our system is we have an idea about how the major players will act, it's not totally opaque and unpredictable like China. If there's another little bubble, it's pretty clear the fed will just let that industry die. If it's huge, at least some players will die. The rest, can either suffer on their own, or suffer as a nationalized entity.