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> Really, the only way economics make sense is if you assume that everything is valued at its real value at any time -- not just when it changes hands. “When t

> Really, the only way economics make sense is if you assume that everything is valued at its real value at any time -- not just when it changes hands. “When the price of a stock can be influenced by a "herd" on Wall Street with prices set at the margin by the most emotional person, or the greediest person, or the most depressed person, it is hard to argue that the market always prices rationally. In fact, market prices are frequently nonsensical.” “Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace, and those who read their Graham & Dodd will continue to prosper.” — Warren Buffett

beagle3 9y ago
It would be great to recite that as response when you get a margin call. But your broker is still going to seize your collateral based on its price, not value.
- empthought 9y ago
  I thought we were talking about shareholders, not speculators. Your premise of "the only way economics make sense is if you assume that everything is valued at its real value at any time -- not just when it changes hands" is absurd on its face; one only need look back nine or ten years for confirmation of this. If what you say were true, Bear Stearns would still exist, and you would have to claim that those real estate hedge funds were at their "real value" both in 2006 and in 2007 even though the latter was pennies on the dollar. Is it any comfort to say, "well, that stock collapsed but I at least I bought it at its 'real value' that it had up until yesterday?" Unless your point is that economics cannot possibly make any sense, I suppose.
  - beagle3 9y ago
    Speculators are shareholders. Bear stearns had pledged 104% of their capital. They weren’t the only one in such a condition, and in this sense it is unfair, but the closing down was justified. The law was changed from “mark to market” (the standard evaluation for decades) to “Mark to fantasy” specifically so that many bankruptcies would not need to be declared - but without a $700B injection at the time, many more would have happened. You cannot have consistent book keeping if two entities can book the same item at the same time for materially different values at the same time. It is as simple as that.

beagle3 9y ago

It would be great to recite that as response when you get a margin call. But your broker is still going to seize your collateral based on its price, not value.

empthought 9y ago
I thought we were talking about shareholders, not speculators. Your premise of "the only way economics make sense is if you assume that everything is valued at its real value at any time -- not just when it changes hands" is absurd on its face; one only need look back nine or ten years for confirmation of this. If what you say were true, Bear Stearns would still exist, and you would have to claim that those real estate hedge funds were at their "real value" both in 2006 and in 2007 even though the latter was pennies on the dollar. Is it any comfort to say, "well, that stock collapsed but I at least I bought it at its 'real value' that it had up until yesterday?" Unless your point is that economics cannot possibly make any sense, I suppose.
- beagle3 9y ago
  Speculators are shareholders. Bear stearns had pledged 104% of their capital. They weren’t the only one in such a condition, and in this sense it is unfair, but the closing down was justified. The law was changed from “mark to market” (the standard evaluation for decades) to “Mark to fantasy” specifically so that many bankruptcies would not need to be declared - but without a $700B injection at the time, many more would have happened. You cannot have consistent book keeping if two entities can book the same item at the same time for materially different values at the same time. It is as simple as that.