An Annoying Market Failure

[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.

[1714190842]

1714190842

[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.