An Annoying Market Failure

[Hawker]

Nassim Nicholas Taleb predicted the crash in 2008 and has a pretty good record since then.  In his latest article, he points to one of the most bizarre aspects of the banking industry.  Its top management has destroyed shareholder value yet salaries for management have not fallen.  They get paid the same whether they destroy the bank or run it profitably.

http://www.project-syndicate.org/commentary/taleb1/English

Money quote: "A well-functioning market would produce outcomes that favor banks with the right exposures, the right compensation schemes, the right risk-sharing, and therefore the right corporate governance.

One may wonder: If investment managers and their clients don’t receive high returns on bank stocks, as they would if they were profiting from bankers’ externalization of risk onto taxpayers, why do they hold them at all?"

Its the same in the UK where there is no SEC type body so its not a regulatory failure. This is a failure by the owners of the banks to hold the top employees to account.  Its as if the people who manage our pensions and savings are not even bothered that the funds have been devalued. 

So, we are all free market enthusiasts.  In any other market, failure would be punished by being fired with no bonus paid.  Even in banks, a clerk who loses a few dollars in a branch will get fired.  Why is it in the finance industry top management, failure is rewarded?

[1715081783]

1715081783

[NghtRppr]

Markets don't fail. People fail. If people refuse to make informed rational choices, they'll get poor results.

[JeffK]

Nassim Nicholas Taleb predicted the crash in 2008 and has a pretty good record since then.  In his latest article, he points to one of the most bizarre aspects of the banking industry.  Its top management has destroyed shareholder value yet salaries for management have not fallen.  They get paid the same whether they destroy the bank or run it profitably.

http://www.project-syndicate.org/commentary/taleb1/English

Money quote: "A well-functioning market would produce outcomes that favor banks with the right exposures, the right compensation schemes, the right risk-sharing, and therefore the right corporate governance.

One may wonder: If investment managers and their clients don’t receive high returns on bank stocks, as they would if they were profiting from bankers’ externalization of risk onto taxpayers, why do they hold them at all?"

Its the same in the UK where there is no SEC type body so its not a regulatory failure. This is a failure by the owners of the banks to hold the top employees to account.  Its as if the people who manage our pensions and savings are not even bothered that the funds have been devalued. 

So, we are all free market enthusiasts.  In any other market, failure would be punished by being fired with no bonus paid.  Even in banks, a clerk who loses a few dollars in a branch will get fired.  Why is it in the finance industry top management, failure is rewarded?

Short answer: Markets, like the humans who participate in them, are not always rational.


Sometimes failure is intended, and therefore, for the bankers who fail and get raises, it is actually a job well done.

[JeffK]

Markets don't fail. People fail. If people refuse to make informed rational choices, they'll get poor results.

Markets are people, If people fail, markets fail.


No, your ideology is not pure and perfect, as much as you'd like to think it is.

[Hawker]

Markets don't fail. People fail. If people refuse to make informed rational choices, they'll get poor results.

Investment managers are employed to do just that.  And for centuries they have done just that - capital markets have always been merciless when it comes to punishing failure. 

The puzzle is why they have stopped for 1 industry since 2008. 

[deuxmill]

Because if they don't punish them then everything gets devalued and capital buys more and then the cycle starts all over again.

[AyeYo]

Markets don't fail. People fail. If people refuse to make informed rational choices, they'll get poor results.

And people can absolutely be trusted to consistently make poor, irrational choices, which is why unhindered markets can be trusted to fail consistently.

The puzzle is why they have stopped for 1 industry since 2008.  

It's not really a puzzle.  Shareholders having a voice and effect is a myth.  The executives run these companies in whatever way they see fit and shareholders can't do a damn thing about it.  Dryships is my favorite example of this, as the CEO who is widely hated by shareholders for his stupid decisions and poor choices has actually come out on multiple occasions and straight up told the shareholders to pound sand, he'll do what he wants and if they don't like it then can sell their stock.








Well isn't that interesting...

[becoin]

This is a failure by the owners of the banks to hold the top employees to account.

It is not failure. The top employees in the banks act upon direct instructions of the owners of the banks!

[Boussac]

This is a failure by the owners of the banks to hold the top employees to account.

It is not failure. The top employees in the banks act upon direct instructions of the owners of the banks!

Let's not lose sight of the fact that the banking system is a cartel organised by the central bank.
The share holders of the banks have little control over what top bankers decide: for instance, exceedingly high compensations in the banking industry act as a barrier to entry.
If some brave shareholders of a bank decided to cut the compensation of the top managers, they would leave and be replaced by newcomers.
The peers of those who left would simply not do business with the newcomers and the brave shareholders would get hurt.

[Hawker]

Lets not descend into conspiracy theories.  It is a market failure in that no-one's interest is being served by the existing situation except that of the top employees.  The question is why.  AyeYo may be right that shareholder power is simply not exercised.  But why not?  The investment managers are losing money and their funds are being downgraded yet they still allow the bank managements to get paid bonuses for losing money.  

[becoin]

The share holders of the banks have little control over what top bankers decide:

Wrong! The shareholders have full control. Not all shareholders of course, but the one that are holding the controlling stake. These shareholders simply do not care how profitable are their banks because their profit is in the form of ultra cheap, unlimited, endlessly revolving, and barely guaranteed loans for their firms and related businesses!

[FirstAscent]

Corporations, businesses, etc. can be counted on to do one thing well: ensure the financial prosperity of upper management. Among the strategies to aid in that outcome are: limiting the flow of information, creating propaganda, consuming resources at the expense of our future and taking advantage of disparities between nations.

[NghtRppr]

Markets are people...

[JeffK]

Markets are people...

Cool image bro, it doesn't change the fact that 'markets' and not some magical God-like entity or a hard mathematical equation, they are comprised of people and thus behave as irrationally as people do.

[NghtRppr]

Cool image bro, it doesn't change the fact that 'markets' and not some magical God-like entity or a hard mathematical equation, they are comprised of people and thus behave as irrationally as people do.

That's like saying that a hammer fails if you smash your thumb with it. Hammers don't smash thumbs. People do. It's just a tool and it can be used poorly or wisely. Hammers aren't people either.

[Hawker]

The point is that it is a market failure. The system hasn't worked. 

[MatthewLM]

The financial mess we are in isn't markets failing, it's the failure for us to have free markets. What we have is a fascist system designed to make bankers and other corporate interest groups rich at the expense of everyone else. It's the failure of corporatism and of-course it fails. It's the failure of central planning being used to make the rich richer and poor poorer. Actually it makes everyone poorer. The economy doesn't go anywhere fast. Some people say this is a good thing, that the governments must stop economic progress.

In summary, the economies are corporatist and not free market so don't be surprised.

[NghtRppr]

The system hasn't worked.

A hammer won't work if you hold it wrong. Clearly, hammers are prone to failure.

[becoin]

The point is that it is a market failure.

Nope, it is not a market failure. Markets worked as expected. Government didn't. It is a government failure. Government were too scared to let the market do its job. Government were too scared to let banks fail. Governments in the US, UK and EU simply surrendered to racketeers. Now the taxpayer has to pay for the losses banks incurred by speculating on real estate markets.

[onesalt]

The point is that it is a market failure.

Nope, it is not a market failure. Markets worked as expected. Government didn't. It is a government failure. Government were too scared to let the market do its job. Government were too scared to let banks fail. Governments in the US, UK and EU simply surrendered to racketeers. Now the taxpayer has to pay for the losses banks incurred by speculating on real estate markets.

This could possibly be something to do with bank failure on such a massive scale destroying civilisation as we know it and rushing in another dark age but whatever.

[becoin]

This could possibly be something to do with bank failure on such a massive scale destroying civilisation as we know it and rushing in another dark age but whatever.

Ah, I see - the sky is falling, the sky is falling. Give us all your money or the sky will fall...

In Iceland a referendum took place and the people of Iceland voted to let their banks fail on a massive scale. Is civilization in Iceland destroyed? Is Iceland rushing in another dark age? But whatever...

[Sovereign]

Classic give us all your money (this time it was literally trillions) or it will be the 'end of the world'

Works every time

[onesalt]

This could possibly be something to do with bank failure on such a massive scale destroying civilisation as we know it and rushing in another dark age but whatever.

Ah, I see - the sky is falling, the sky is falling. Give us all your money or the sky will fall...

In Iceland a referendum took place and the people of Iceland voted to let their banks fail on a massive scale. Is civilization in Iceland destroyed? Is Iceland rushing in another dark age? But whatever...

There was riots for weeks and the "letting the banks fail" ended up with one being nationalised (so it could be properly run by the government) and two others being sold to other buyers. The Icelanding stockmarket crashed from 9000 points to less than 300 in the space of a year, caused an economic recession of 5.5% of economic growth, and cost iceland as a whole almost 8 billion dollars as well as completely HALVING its GDP. That is not nothing. There was plenty of other effects because of overseas issues (a lot of places have money in icelandic banks) and overseas debt in icelandic banks.

Now you imagine what would happen if this happened in the USA, with a GDP of 14 trillion dollars, suddenly had its GDP drop by half.

[NghtRppr]

Now you imagine what would happen if this happened in the USA, with a GDP of 14 trillion dollars, suddenly had its GDP drop by half.

That would be terrible because we all know that when GDP drops to zero, all the machinery, labor force and natural resources magically vanish.

[AyeYo]

Cool image bro, it doesn't change the fact that 'markets' and not some magical God-like entity or a hard mathematical equation, they are comprised of people and thus behave as irrationally as people do.

That's like saying that a hammer fails if you smash your thumb with it. Hammers don't smash thumbs. People do. It's just a tool and it can be used poorly or wisely. Hammers aren't people either.

Your analogy would be appropirate if hammers were made of people, but it would still be wrong.  Markets are a non-tangible entity comprised of interactions between people.  So, as JeffK said, markets ARE the people that comprise them.  Markets are fallible because people are fallible.  This IS one of the many cases of market failure.  Now that that's established, let's get back to the topic of discussing why it failed...


I'm not sure if Hawker is trying to get at something specific, but as far as I'm concerned the answer is simple and basically summarized here:

Corporations, businesses, etc. can be counted on to do one thing well: ensure the financial prosperity of upper management. Among the strategies to aid in that outcome are: limiting the flow of information, creating propaganda, consuming resources at the expense of our future and taking advantage of disparities between nations.

[onesalt]

Now you imagine what would happen if this happened in the USA, with a GDP of 14 trillion dollars, suddenly had its GDP drop by half.

That would be terrible because we all know that when GDP drops to zero, all the machinery, labor force and natural resources magically vanish.

No but GDP does influence tax rates, employment rates, laws and legislation that gets passed and so on. The GDP dropping by half in a year would essentially mean that the country would get much less in tax income, massive lay-offs of staff would occur at a lot of businesses (since GDP is a direct translation of income from businesses and suchlike) and some goods would suddenly drop into non existence as the company that makes or imports them goes bust. Companies can't do business if the money they're using for their business suddenly vanishes from their bank becuase their bank exploded, essentially.

[NghtRppr]

No but GDP does influence tax rates, employment rates, laws and legislation that gets passed and so on. The GDP dropping by half in a year would essentially mean that the country would get much less in tax income, massive lay-offs of staff would occur at a lot of businesses (since GDP is a direct translation of income from businesses and suchlike) and some goods would suddenly drop into non existence as the company that makes or imports them goes bust. Companies can't do business if the money they're using for their business suddenly vanishes from their bank becuase their bank exploded, essentially.

It would be chaos for a while but once people settled on a new sound monetary system we'd recover. Of course, it would be a smart move to already adopt sound money before anything happens. Someone should invent some kind of electronic money that could store value and be transmitted digitally without it being easily counterfeited. Then we could use that instead of money created by arbitrary fiat and not have to worry about these problems.

[JeffK]

Cool image bro, it doesn't change the fact that 'markets' and not some magical God-like entity or a hard mathematical equation, they are comprised of people and thus behave as irrationally as people do.

That's like saying that a hammer fails if you smash your thumb with it. Hammers don't smash thumbs. People do. It's just a tool and it can be used poorly or wisely. Hammers aren't people either.

This analogy doesn't make a goddamn bit of sense. Does anyone on these forums know how analogies are supposed to work?

[TiagoTiago]

The top hats still get their bonuses 'cause otherwise the company would loose money; if they didn't get their big bucks as usual it would send the message the company is fragile and doesn't expect to keep making money and the investors would run away. Like this guy mentioned in the video, the top guys in the drug gangs still make it rain even when busyness is bad, for the fear of showing weakness.

[becoin]

Now you imagine what would happen if this happened in the USA, with a GDP of 14 trillion dollars, suddenly had its GDP drop by half.

Nothing unwitnessed before will happen. What did happen when the Soviet empire collapsed? Nothing too dramatic. The sky didn't fall.

The US is an economic bubble for decades for they consume 25% (producing less than 20%) of the world GDP virtually living on credit for decades. Their military budget is bigger than military budgets of all other countries on this planet taken together! If what you describe takes place the US will just cease to be the only super power in this world - nothing more and nothing less. The sky will not fall. Economic power will shift to Asia-Pacific region. It is currently shifting anyway. Postponing the inevitable by money printing in the US and EU is just borrowing from the future, deteriorating the consequences, and blatantly robbing future generations.

[NghtRppr]

This analogy doesn't make a goddamn bit of sense.

I'm sorry you don't understand it. Tell me what's confusing about it and I'll walk you through it.

[JeffK]

A group of people cannot be a part/whole of a hammer. They can be part or the whole of a market though. Your 'blame the person, not the tool' analogy does not make sense, because markets are not so much a tool as they are a product of human interactions.


Side note: You, however, are a tool, so maybe it makes sense if you think about it that way.

[NghtRppr]

A group of people cannot be a part/whole of a hammer. They can be part or the whole of a market though. Your 'blame the person, not the tool' analogy does not make sense, because markets are not so much a tool as they are a product of human interactions.


Side note: You, however, are a tool, so maybe it makes sense if you think about it that way.

I was going to debate this with you since you were making a decent argument but now I'm just going to add you to my ignore list. If someone with some manners wants to take up your argument, I'll debate it with them instead. Don't bother responding to me because I won't be able to see it. Unless, of course, you just like talking to yourself.

[JeffK]

A group of people cannot be a part/whole of a hammer. They can be part or the whole of a market though. Your 'blame the person, not the tool' analogy does not make sense, because markets are not so much a tool as they are a product of human interactions.


Side note: You, however, are a tool, so maybe it makes sense if you think about it that way.

I was going to debate this with you since you were making a decent argument but now I'm just going to add you to my ignore list. If someone with some manners wants to take up your argument, I'll debate it with them instead. Don't bother responding to me because I won't be able to see it. Unless, of course, you just like talking to yourself.

(He just can't think up an analogy)

[AyeYo]

A group of people cannot be a part/whole of a hammer. They can be part or the whole of a market though. Your 'blame the person, not the tool' analogy does not make sense, because markets are not so much a tool as they are a product of human interactions.


Side note: You, however, are a tool, so maybe it makes sense if you think about it that way.

I was going to debate this with you since you were making a decent argument but now I'm just going to add you to my ignore list. If someone with some manners wants to take up your argument, I'll debate it with them instead. Don't bother responding to me because I won't be able to see it. Unless, of course, you just like talking to yourself.

(He just can't think up an analogy)

He'll eventually have the entire forum on his ignore list and he'll just be talking to himself.  It's easier to hang out to laughably idiotic beliefs when you don't have to hear anyone challenge them.

[FirstAscent]

He's got at least four on his ignore list (me included). And I've never seen someone so perfectly embody the definition of petulance as when he puts someone on the ignore list.

[becoin]

Markets are people, If people fail, markets fail.

No! Markets are markets. People are people.

Do you remember that scene from the baron Munchausen story when the famous baron and his horse are sinking into the swamp, then, driven by a brilliant idea, the baron grabs his own hair and pulls himself and his horse out of the swamp.

You must be a great fan of baron Munchhausen's approach to surrounding reality?!... People just need to change their mind to get the markets going?!... Huh?...

[GideonGono]

How in hell is that a Market Failure when you have Central Planning in Monetary Policy, innumerable banking and finance regulations and an army of bureaucrats to go with it??!! This is a clear failure in govt policy, and govt supporters are failing to take responsibility! 

[Hawker]

How in hell is that a Market Failure when you have Central Planning in Monetary Policy, innumerable banking and finance regulations and an army of bureaucrats to go with it??!! This is a clear failure in govt policy, and govt supporters are failing to take responsibility! 

Actually you don't.  Investment managers are free to invest where they choose but are supposed to invest where they get the gretest return.  The higher their returns, the better their bonuses.  Its a good system.  But for soem reason, they are investing in banks that are very badly managed and the bank management are taking millions as huge bonuses.  The investment managers are essejntially paying for people to mess them up - it doesn't make sense.

Apparently the problem is "asymmetrical information" - its a known cause of market failure.

[becoin]

Investment managers are free to invest where they choose but are supposed to invest where they get the gretest return. 

The greatest return is when you bribe government officials. You get the information you need (you say it is asymmetrical, huh) and lucrative contracts, and government bail-outs!

The investment managers are essejntially paying for people to mess them up - it doesn't make sense.

I hope it now does make sense!

[Hawker]

Investment managers are free to invest where they choose but are supposed to invest where they get the gretest return. 

The greatest return is when you bribe government officials. You get the information you need (you say it is asymmetrical, huh) and lucrative contracts, and government bail-outs!

The investment managers are essejntially paying for people to mess them up - it doesn't make sense.

I hope it now does make sense!

Pension funds don't get money that way.  Feel free to check their accounts.

[bitconformist]

How in hell is that a Market Failure when you have Central Planning in Monetary Policy, innumerable banking and finance regulations and an army of bureaucrats to go with it??!! This is a clear failure in govt policy, and govt supporters are failing to take responsibility! 

It was market failure in that it was a systemic failure in numerous sections of the financial sector. The only fault government had in this was poor, neglected regulation to begin with, and ham-fisted management of the bank bail-outs.

The markets failed because of a set of securities and derivatives that crazy people invented and everyone bought. Everyone was tossing around mis-labeled investments that turned out to be live grenades and then when the grenades went off they found they were all tied to each other with no way out. Everyone involved should be in prison and THAT is where the government truly failed.

[AyeYo]

How in hell is that a Market Failure when you have Central Planning in Monetary Policy, innumerable banking and finance regulations and an army of bureaucrats to go with it??!! This is a clear failure in govt policy, and govt supporters are failing to take responsibility! 

It was market failure in that it was a systemic failure in numerous sections of the financial sector. The only fault government had in this was poor, neglected regulation to begin with, and ham-fisted management of the bank bail-outs.

The markets failed because of a set of securities and derivatives that crazy people invented and everyone bought. Everyone was tossing around mis-labeled investments that turned out to be live grenades and then when the grenades went off they found they were all tied to each other with no way out. Everyone involved should be in prison and THAT is where the government truly failed.

x1000

[NghtRppr]

The only fault government had in this was poor, neglected regulation to begin with, and ham-fisted management of the bank bail-outs.

So, government is provably incompetent at setting and enforcing regulations and your answer is, more regulations? Brilliant!

[bitconformist]

The only fault government had in this was poor, neglected regulation to begin with, and ham-fisted management of the bank bail-outs.

So, government is provably incompetent at setting and enforcing regulations and your answer is, more regulations? Brilliant!

My solution is fixing the oversight. End the collusion between the US SEC and Wall St, tighten banking regs, eliminate these insane securities/derivatives, and fix a broken system. Anything else is bound to create the exact same problem (albeit possibly in a new sphere) in a few decades.

The SEC wasn't so much asleep at the wheel as it was openly trading staff with PWC and Goldman Sachs. Congress wasn't so much ignorant and clumsy as they were paid for representatives of Bear Stearns et al, and that's only going to get worse when the corrosive effects of Citizens United really happen.

[bitconformist]

Incidentally, the standard American attitude of "the government is broken, we need to get rid of it!" is exactly why your government is broken. It's called a self-fulfilling prophecy.

[NghtRppr]

Incidentally, the standard American attitude of "the government is broken, we need to get rid of it!" is exactly why your government is broken. It's called a self-fulfilling prophecy.

Does not compute.

[AyeYo]

Incidentally, the standard American attitude of "the government is broken, we need to get rid of it!" is exactly why your government is broken. It's called a self-fulfilling prophecy.

Does not compute.

Exert all the thinking effort your brain can muster and it might begin to compute.  Then the world will make more sense to you.


You can't on the one hand claim that government is bad because it allows corporations to rape and pillage... then turn around and say we need to do away with government, give all power directly to corporations and they'll magically start behaving.  If they don't behave WITH regulation, they aren't going to behave WITHOUT regulation.

You've got a rowdy prisoner that keeps trying to break out of jail and your solutions is: let's just get rid of the jail and then he can't break out of it anymore!  The rest of us with working brains and a little foresight are saying: let's fix the hole in the fence and fire the guards that are colluding with him.

[Ekaros]

Fear caused failure in goverment, on other hand failure in goverment was caused by money and lobbying...

It's high time to crash the system, endure some bad years and move to brighter future. Also getting rid of investment banking and sectors which don't produce real tanglible value for economy, investments and such are needed for stock market, but there is lot of crap which is just bubbles, like there once was tulips

[bitconformist]

Incidentally, the standard American attitude of "the government is broken, we need to get rid of it!" is exactly why your government is broken. It's called a self-fulfilling prophecy.

Does not compute.

Consider: you've got a government program that does X. When created, it's funded at 80% of what subject matter experts asked for but that's all congress would give. Next election a new congress is elected that decides that government is doing a terrible job at X (despite it not having started), taxes are too high, and they hate X anyway...and halves the funding. The new program doesn't succeed.

Is this government not being able to do its job or is it because dumb fucks who believe as you do vote in people who hamstring government so that it cannot do its job? Hint: its the latter.

[NghtRppr]

Incidentally, the standard American attitude of "the government is broken, we need to get rid of it!" is exactly why your government is broken.

halves the funding

This might just be me being a "dumb fuck", as you so eloquently put it, but I'm pretty sure that 1/2 does not equal 0. Also, saying that government fails to work because it doesn't have enough power or money is kind of like when a psychic medium says that they got an answer wrong because you didn't believe enough. It's pretty convenient that the fault is always with someone else.

[FirstAscent]

This might just be me being a "dumb fuck", as you so eloquently put it, but I'm pretty sure that 1/2 does not equal 0.

He said that halving the funding plays a significant role in causing a program to fail. Nowhere did he say that 1/2 equals 0. Just maybe you are a dumb fuck, as you suppose, or maybe you think we're dumb fucks and will fall for your spin of what he said. Which is it?

[GideonGono]

How in hell is that a Market Failure when you have Central Planning in Monetary Policy, innumerable banking and finance regulations and an army of bureaucrats to go with it??!! This is a clear failure in govt policy, and govt supporters are failing to take responsibility! 

It was market failure in that it was a systemic failure in numerous sections of the financial sector. The only fault government had in this was poor, neglected regulation to begin with, and ham-fisted management of the bank bail-outs.

The markets failed because of a set of securities and derivatives that crazy people invented and everyone bought. Everyone was tossing around mis-labeled investments that turned out to be live grenades and then when the grenades went off they found they were all tied to each other with no way out. Everyone involved should be in prison and THAT is where the government truly failed.

And the proliferation of said securities had nothing to do with the artificially low interest rates dictated by the Central Bank?

My solution is fixing the oversight. End the collusion between the US SEC and Wall St, tighten banking regs, eliminate these insane securities/derivatives, and fix a broken system. Anything else is bound to create the exact same problem (albeit possibly in a new sphere) in a few decades.

The SEC wasn't so much asleep at the wheel as it was openly trading staff with PWC and Goldman Sachs. Congress wasn't so much ignorant and clumsy as they were paid for representatives of Bear Stearns et al, and that's only going to get worse when the corrosive effects of Citizens United really happen.

How will you end collusion when the banksters are entrenched not only in the regulatory bodies but Congress itself. Have you considered that the more centralized power there is the higher the incentive for these groups to try to hijack it?

Consider: you've got a government program that does X. When created, it's funded at 80% of what subject matter experts asked for but that's all congress would give. Next election a new congress is elected that decides that government is doing a terrible job at X (despite it not having started), taxes are too high, and they hate X anyway...and halves the funding. The new program doesn't succeed.

Is this government not being able to do its job or is it because dumb fucks who believe as you do vote in people who hamstring government so that it cannot do its job? Hint: its the latter.

Assuming this analysis is correct, it only shows that government can't work. The electorate and politicians are fickle and what you've described will always happen. If program X requires that much consistency to succeed then it won't work in a democracy, maybe it might in a monarchy or dictatorship.

[FirstAscent]

The electorate and politicians are fickle and what you've described will always happen. If program X requires that much consistency to succeed then it won't work in a democracy, maybe it might in a monarchy or dictatorship.

Sadly, this is pretty much true.

[Hawker]

This is a market failure; not regulatory and no regulation can fix it.  Investment managers are not doing their jobs.  And since each of us individually has so little cash in the investment funds, they don't really care if one person or another takes their savings elsewhere.  Besides, where can you go when it seems all of them have this same blind spot?

[hugolp]

This is a market failure; not regulatory and no regulation can fix it.  Investment managers are not doing their jobs.  And since each of us individually has so little cash in the investment funds, they don't really care if one person or another takes their savings elsewhere.  Besides, where can you go when it seems all of them have this same blind spot?

The banking system is one of the areas more heavily regulated in the western countries. The money market is a government created monopolly and the credit system is a government created oligopolly, with the government setting the basic interest rates by decree. And you tell me its a market failure? I hope this is some kind of joke.

Btw, I know you wont because you are too busy trolling but I would suggest you go to research historic periods where the banking and money markets have been a free market and you will see this you are complaining about did not happened.

[Hawker]

This is a market failure; not regulatory and no regulation can fix it.  Investment managers are not doing their jobs.  And since each of us individually has so little cash in the investment funds, they don't really care if one person or another takes their savings elsewhere.  Besides, where can you go when it seems all of them have this same blind spot?

The banking system is one of the areas more heavily regulated in the western countries. The money market is a government created monopolly and the credit system is a government created oligopolly, with the government setting the basic interest rates by decree. And you tell me its a market failure? I hope this is some kind of joke.

Btw, I know you wont because you are too busy trolling but I would suggest you go to research historic periods where the banking and money markets have been a free market and you will see this you are complaining about did not happened.

Read the OP.  The problem is not in the banking or credit system - its in the investment system. 

And its childish calling everyone who you disagree with a troll.  Either stop feeding me or grow up a little.

[hugolp]

Read the OP.  The problem is not in the banking or credit system - its in the investment system.

I think you want to re-read yourself. The banking and credit system is the investment system.

[Hawker]

Read the OP.  The problem is not in the banking or credit system - its in the investment system.

I think you want to re-read yourself. The banking and credit system is the investment system.

Fund managers are not regulated as to which companies they invest in.  Normally they are a proactive bunch and CEOs who are not performing are made very aware of that fact.

http://www.bbc.co.uk/news/business-14816077 Carol Bartz is a fine example of someone who was not performing and was fired.  Thats a good thing and we want it to happen.

As you can see in the article linked in OP, fund managers do that regularly but for some reason ignore failing bank management.  They simply are not making the management pay for poor performance in banking the way they are made to pay for poor performance in the technology sector.

I've googled a bit and the problem seems to be http://en.wikipedia.org/wiki/Information_asymmetry.   Its a known cause of market failure.  And as the article says, its not one that regulation would help.

[hugolp]

Fund managers are not regulated as to which companies they invest in.  Normally they are a proactive bunch and CEOs who are not performing are made very aware of that fact.

http://www.bbc.co.uk/news/business-14816077 Carol Bartz is a fine example of someone who was not performing and was fired.  Thats a good thing and we want it to happen.

As you can see in the article linked in OP, fund managers do that regularly but for some reason ignore failing bank management.  They simply are not making the management pay for poor performance in banking the way they are made to pay for poor performance in the technology sector.

1. The fund managers are regulated.
2. They get their money from the banking system to leverage and are completely influenced by the supply of money and credit.

Please, make some sense.

I've googled a bit and the problem seems to be http://en.wikipedia.org/wiki/Information_asymmetry.   Its a known cause of market failure.  And as the article says, its not one that regulation would help.

Neoclassical economics assumed until the 70's that information was given. Austrian economics has always assumed information was local and fragmented and no one had all the information. This fact was one of the main arguments of austrians to prove that centralized systems dont work and the free market is the best solution to distribute resources.

Austrian economists called out neo-classicals (including the keynesians and monetarists) on it, but they refused to listen. Then during the 70's some keynesians claimed they had discovered a flaw in the economic though, and that was that information was not given. Ignoring that this was exactly what the austrians had been saying all along, they call it information asymetry (they are always very good with the marketing). Stiglitz even got the Nobel prize for this "discovery". Then they said it was a market failure, when in reality is one of the main arguments for the free market.

[bitconformist]

How will you end collusion when the banksters are entrenched not only in the regulatory bodies but Congress itself. Have you considered that the more centralized power there is the higher the incentive for these groups to try to hijack it?

Assuming this analysis is correct, it only shows that government can't work. The electorate and politicians are fickle and what you've described will always happen. If program X requires that much consistency to succeed then it won't work in a democracy, maybe it might in a monarchy or dictatorship.

You reduce the collusion by taking money out of politics. Plenty of countries have elections that don't involve trillion dollar advertising budgets!

It shows that the US government is fundamentally broken due to decades of political misinformation (anyone who still believes Reaganomics is obviously deluded), a terrible secondary education system, and a political system that runs on a combination of bribery and bombast.

[Hawker]

Fund managers are not regulated as to which companies they invest in.  Normally they are a proactive bunch and CEOs who are not performing are made very aware of that fact.

http://www.bbc.co.uk/news/business-14816077 Carol Bartz is a fine example of someone who was not performing and was fired.  Thats a good thing and we want it to happen.

As you can see in the article linked in OP, fund managers do that regularly but for some reason ignore failing bank management.  They simply are not making the management pay for poor performance in banking the way they are made to pay for poor performance in the technology sector.

1. The fund managers are regulated.
2. They get their money from the banking system to leverage and are completely influenced by the supply of money and credit.

Please, make some sense.

I've googled a bit and the problem seems to be http://en.wikipedia.org/wiki/Information_asymmetry.   Its a known cause of market failure.  And as the article says, its not one that regulation would help.

Neoclassical economics assumed until the 70's that information was given. Austrian economics has always assumed information was local and fragmented and no one had all the information. This fact was one of the main arguments of austrians to prove that centralized systems dont work and the free market is the best solution to distribute resources.

Austrian economists called out neo-classicals (including the keynesians and monetarists) on it, but they refused to listen. Then during the 70's some keynesians claimed they had discovered a flaw in the economic though, and that was that information was not given. Ignoring that this was exactly what the austrians had been saying all along, they call it information asymetry (they are always very good with the marketing). Stiglitz even got the Nobel prize for this "discovery". Then they said it was a market failure, when in reality is one of the main arguments for the free market.

Fund managers are regulated in the sense that they are not allowed to pack your pension fund in a suitcase and emigrate to the Bahamas.  But they are NOT regulated as to which of the firms they praise the CEO of and which they demand the CEO be sacked.  Yet they are sacking failing technology CEOs and praising failing banking CEOs.  Of course this is simplifying what is happening but the point remains its strange and inconsistent behaviour.

I take your point about Austrians not agreeing with the terminology.
 

[hugolp]

Fund managers are regulated in the sense that they are not allowed to pack your pension fund in a suitcase and emigrate to the Bahamas.  But they are NOT regulated as to which of the firms they praise the CEO of and which they demand the CEO be sacked.  Yet they are sacking failing technology CEOs and praising failing banking CEOs.  Of course this is simplifying what is happening but the point remains its strange and inconsistent behaviour.

And they are heavily regulated in the amount of money they have access to which is one of the most important issues and my point all along.

[onesalt]

The only reason British banks collapsed was because Reagans best friend Margarat Thatcher Deregulated all the fucking banks during her reign of terror, in addition to essentially closing all the mines, factories, salting the north so nothing would grow and making ritual satanic sacrifices a requirement to join the tory party.

[hugolp]

The only reason British banks collapsed was because Reagans best friend Margarat Thatcher Deregulated all the fucking banks during her reign of terror, in addition to essentially closing all the mines, factories, salting the north so nothing would grow and making ritual satanic sacrifices a requirement to join the tory party.

Neither Reagan nor Margareth Thatcher removed any of the banking regulations that Ive metioned.

If you want to try to prove that they did, please go ahead.

[AyeYo]

Fund managers are regulated in the sense that they are not allowed to pack your pension fund in a suitcase and emigrate to the Bahamas.  But they are NOT regulated as to which of the firms they praise the CEO of and which they demand the CEO be sacked.  Yet they are sacking failing technology CEOs and praising failing banking CEOs.  Of course this is simplifying what is happening but the point remains its strange and inconsistent behaviour.

And they are heavily regulated in the amount of money they have access to which is one of the most important issues and my point all along.

There's no limit to what can be blamed on regulation.

When company A rapes and pillages society, pollutes the environment, keeps children as sex slaves, and murders local villagers... it's all the government's fault because of that building code about the minimum height of door frames.  If it wasn't for that evil regulation, everything else would have gone differently.

[hugolp]

There's no limit to what can be blamed on regulation.

When company A rapes and pillages society, pollutes the environment, keeps children as sex slaves, and murders local villagers... it's all the government's fault because of that building code about the minimum height of door frames.  If it wasn't for that evil regulation, everything else would have gone differently.

Another example of constructive an on-topic comment of AyeYo. Very interesting your explanation about banking regulations. Keep the good work.

[Hawker]

Fund managers are regulated in the sense that they are not allowed to pack your pension fund in a suitcase and emigrate to the Bahamas.  But they are NOT regulated as to which of the firms they praise the CEO of and which they demand the CEO be sacked.  Yet they are sacking failing technology CEOs and praising failing banking CEOs.  Of course this is simplifying what is happening but the point remains its strange and inconsistent behaviour.

And they are heavily regulated in the amount of money they have access to which is one of the most important issues and my point all along.

Its true but off topic.   

Anyway, bored of this.  Regardless of the cause there doesn't seem to be anything a retail investor can do about it.