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> Markets as optimization tools only work if people are made to suffer their losses when they occur; bailouts subvert the process and pervert the outcomes. Thi

> Markets as optimization tools only work if people are made to suffer their losses when they occur; bailouts subvert the process and pervert the outcomes. This is such an important aspect of optimization that is often forgotten. Small crashes have to happen and as much pain as they cause, they are nothing compared to what will get heaved if they turn systemic. They have an important function of keeping the players honest and up to date about their risk models. In a world where nobody is allowed to fail, risk taking will balloon monotonically until the entire system fails. This is basically axiomatic. Real estate investments are again seen as a risk free asset class, where the only way is up. You know things are bad when we have landlords clutching their pearls about having a negative year of returns. This is nuts. The pain is important. It reminds everyone about the left tails and that they should de-lever carefully now, before things get amplified into a systemic crash where controlled de-levering becomes impossible.

lamontcg 4y ago
> Small crashes have to happen and as much pain as they cause, they are nothing compared to what will get heaved if they turn systemic. The CMBS crash is very likely to be systemic.
- RichEO 4y ago
  In the event of a systemic crash, human beings should be bailed out by government support. Corporations should be allowed to fail. Corporations already exist to shield their owners from consequences of their decisions.
  - lamontcg 4y ago
    Which causes rippling credit defaults and money market failures and now every corporation can't get short-term financing for payroll and ATMs stop working. And really that last sentence is the problem. Even if the companies fail it lands on the stockholders, who often had no idea what was going on, a good chunk of them having bought the company through 401(k) funds. The executives go on to other businesses and there's no real consequences for the humans that actually made the decision. We need to really end the fiction that its the legal entity of corporations that make decisions and should be punished. In reality its the humans behind the curtains doing the deciding, that curtain needs to get stripped away if there is to be real consequences.

lamontcg 4y ago

> Small crashes have to happen and as much pain as they cause, they are nothing compared to what will get heaved if they turn systemic. The CMBS crash is very likely to be systemic.

RichEO 4y ago
In the event of a systemic crash, human beings should be bailed out by government support. Corporations should be allowed to fail. Corporations already exist to shield their owners from consequences of their decisions.
- lamontcg 4y ago
  Which causes rippling credit defaults and money market failures and now every corporation can't get short-term financing for payroll and ATMs stop working. And really that last sentence is the problem. Even if the companies fail it lands on the stockholders, who often had no idea what was going on, a good chunk of them having bought the company through 401(k) funds. The executives go on to other businesses and there's no real consequences for the humans that actually made the decision. We need to really end the fiction that its the legal entity of corporations that make decisions and should be punished. In reality its the humans behind the curtains doing the deciding, that curtain needs to get stripped away if there is to be real consequences.