Anyway, the banks are making too much money. Simple as that. There are all sorts of problems that can be variously characterized as either inefficiency (lack of transparency, competition, etc.) or as incorrect market rules (which NOONE wants to consider, as if the fundamental rules and definitions of market players and instutitions were given to us by God on Sinai).
The end result is that these arbetreurs are making way more than they should be, like unionized electricians. And they play the wrong game (although gambling in itself doesn’t make a group of people rich… gambling is zero-sum).
It’s more like gambling in a casino with someone else’s (literally) infinite bankroll, and soaking up the free drinks, hookers and penhouse suite. The people supplying the bankroll are too afraid to call in the loan because you owe them too much money.
The true value of something is what people are willing to pay for it.
Of course there is always some rube who can be duped but in a massive market with lots of people that gets washed away. As such the market works very well in this fashion. You’d have to go out of your way and do an OTC transaction to get burned. The market provides safeguards for people buying and selling to ensure everyone is getting the best price at that moment.
The catch is IBM may fudge the books to make themselves appear better than they are (and do not tell me that is illegal…there are plenty of legal ways to finesse the numbers that are legal). Transparency and oversight are not what they should be.
It is not that chaotic unless you are looking at it on the quantum level (i.e. if your chart is calibrated to sub-penny levels it will look chaotic). Overall the market is smooth(ish). Sure some big price moves happen on occasion, this or that company/commodity will swing madly, but generally you can get in and get out without a massive win/loss.
Risk transference is a wonderful mechanism and incredibly useful in the economy. Again the problem lies in transparency and oversight. As mentioned above slicing and dicing is fine. Giving a loan to a homeless crack addict is fine (from an investor’s point of view) IF the investor is aware of exactly what it is they are buying. Generally such a loan would be so hideously unprofitable to get anyone to buy it wouldn’t happen. The home loan market was fixed to hide all that mess so good decisions could not be made.
Liquidity is just the existence of a market essentially. That if you go to market chances are excellent someone will be there to trade with you. Not sure what chaos has to do with that. This is the grease in the machine. No one would sink money in IBM if only a few shares a year were ever traded. A stock certificate won’t feed you if no one is out there to buy it.
You’re either using a circular definition because you’d like to revel in it, or you are presuming a certain efficiency in the market and arguing from that. A value of a company is something that can be very concretely calculated. You add up all the dividens it will ever pay out and the price its terminal buyer paid (and other such things), and that is its value. If you take a dead company and go back in time to analyze how it was priced, you can conclude whether the market valued it correctly. Maybe it’s blasphemy to you, but it’s true. You can argue about what information the market had to work with when making its predictions and find other excuses, but you will conclude that a) the market isn’t exactly effective at pricing and predicting the future and b) the large swings in judged value are simply unjustified and inexcusable.
You know that the stock market does not seriously try to price companies by how much dividens they’ll pay out (how profitable they’ll be). It prices them by how it expects it’ll be able sell them off to someone else, in a rather pyramid scheme fashion (or a pyramid-shaped circle… is there a math term for that?). This disparity is. the. root. of. the. problem. I know you have the wisdom and intelligence to see this.
By ‘chaotic’ i did not mean that it is not smooth. Chaotic is used to mean chaotic like the weather. The weather is smooth enough, right? But a region’s weather is dependent on another region’s weather which is dependent on a third region’s weather, and that goes through various slices in time, etc. Basically, chaotic means “difficult to predict for the reason that there is a complex feedback pheonomenon, aka a circle jerk, going on.” The complex feedback phenomenon being that traders are only after predicting each other from moment to moment.
Btw, I know what you mean regarding the crack addict alegory and i agree wholeheartedly. (I think it’s ok to give poor people risky loans, etc.) That’s not what I meant regarding risk transference. Risk transference is great and logical. What I pointed out is that the market, in granting it, also causes a whole bunch of risk all on its own, which is ironic.
Re: liquidity. I made the wrong point in my previous post. Here is the right point: Over-liquidity is the CAUSE of the chaos. Liquidity is great. Yet liquidity permits this tail-chasing of idle speculation whereby the players try to predict eachother and not anything real. Again, the irony. (But reducing liquidity is not the only solution. For example, letting stocks expire after some years will force to ponder the dividens that will paid out during that period much more seriously.)
And to bring things back full-circle, investors not caring about dividens is the cause of the bonus problem. If the stockholders were greedy, as they should be, they’d smack the executives over the head and take back their money. But because the market is broken and stockholders don’t care about grabbing the profits, the executives just pocket it themselves. (They also run their companies less efficiently, waste money on worthless expansion projects, etc., etc.) It’s perfectly ‘rational,’ and it goes on in all industries not just banking.
The TARP funds were supposed to be used for stabilizing the banks and increasing lending. The economy was supposed to get a boost. The banks did not do that. They dried up lending, canceled credit cards, jacked rates up, and did not deal with foreclosures which still threaten the recovery. They treated it like it was their money and they owned the country nothing. We should have let Goldman go down. They were the players in back of the crash and the arrogant pricks feel no remorse.
They acquires assets and sat ion them. Now that the prices are going up they are skimming billions off it. They gave themselves huge bonuses last year and are at it again. We are being looted again.
How can you ‘concretely calculate’ all the dividends that ‘will ever pay out’? Seems to me that might involve at least a tiny bit of speculation. Wait, no. I guess it’s actually 100% speculation, isn’t it, unless you live in a planned economy.