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Old 06-27-2008, 10:22 AM
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Default "How to stop the next bubble"

A roundtable discussion from Prospect magazine:

http://www.prospect-magazine.co.uk/a...s.php?id=10254

A bit that stood out to me:
Quote:
[MARTIN] WOLF: I believe that there is indeed something very problematic about the way that we have been thinking about free financial markets and how they are regulated. George’s basic point—that market deviations are natural and self-reinforcing and can, if not checked, turn into bubbles—is correct. The efficient market hypothesis—which emerged in its many variants in the 1970s—is not looking very convincing now. We have just had two of the biggest bubbles ever measured—the stock market bubble and the current credit-cum-housing bubble—in the most sophisticated economies in the world. This is not happening in Korea and you can’t blame it on crony capitalism in Thailand. This is in the US and Britain, and these events simply cannot be reconciled with any version of the efficient market hypothesis. Therefore the insights of somebody like George, or like Robert Schiller, who looks at this in terms of behavioural economics, or Hyman Minsky’s theories, seem to me a much better account of how financial markets actually work than the views of orthodox economists from ten or 15 years ago. The financial markets cannot be given the benefit of the doubt in quite the way that they were before. So the regulators have to start by thinking, if we let these guys do whatever they like, we might face big problems. This does not mean, of course, that we want to close down financial markets and have government-allocated capital. That is a lousy alternative, and we know financial markets do lots of things very well. We want them to exist, but we need to reduce as far as possible the consequences of extreme stupidity and extreme cupidity.


That means looking at many things from less pro-cyclical capital requirements, to incentives, to liquidity requirements, to more regulation of products sold to consumers—the mortgage lending that went on in the US was simply criminal. But we also have to understand that we are not going to completely eliminate danger. We can reduce it by various mechanisms, but we are dealing with people who are brilliant at getting around regulation—so we can regulate banks, but we end up with hedge funds and so on. In addition, even if we had a single global regulator we would have many countries pursuing different policies, some of them at odds with one another.
Many of the regulatory schemes seem mainly an arms war of brains, as it were. It's futile to think that one can completely scrub out fraud, hubris, and greed with regulatory schemes (or if you do, you completely kill economic activity of any kind, which is far from ideal). I am concerned about the effects of the principles-based approaches and possible federal charter in the U.S., as any regulatory change is a chance for the battle of the brains to begin again.
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Old 06-27-2008, 01:38 PM
ShebaPoe ShebaPoe is offline
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Cycles (in the economy) will go away when fractional reserve banking does. Cycles in insurance pricing will become less severe if this occurs.

Also, I am not an actuary.
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Old 07-01-2008, 10:52 AM
Ilyak1986 Ilyak1986 is offline
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How to stop it? You don't. Bubbles are created from people's own stupidity. You will do far more collateral damage to try and protect people from themselves.

Protecting people from themselves in this case is what you call socialism.

That said, I still vote democractic because the republicans have been too lax, and I think democrats can do a better job economically, or so my short nearly 22-year life has told me.

What you CAN do to prevent bubbles without mass regulation is this:

EDUCATE people. Instead of teaching massive amounts of boring literature, teach some economics. Teach some finance and teach people about the nature of the financial industry.

You can either try to help the stupid a day at a time, or you can educate the stupid and eliminate the stupidity.
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Old 07-06-2008, 08:40 PM
ShebaPoe ShebaPoe is offline
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Quote:
Originally Posted by Ilyak1986 View Post
How to stop it? You don't. Bubbles are created from people's own stupidity. You will do far more collateral damage to try and protect people from themselves.

Protecting people from themselves in this case is what you call socialism.

That said, I still vote democractic because the republicans have been too lax, and I think democrats can do a better job economically, or so my short nearly 22-year life has told me.

What you CAN do to prevent bubbles without mass regulation is this:

EDUCATE people. Instead of teaching massive amounts of boring literature, teach some economics. Teach some finance and teach people about the nature of the financial industry.

You can either try to help the stupid a day at a time, or you can educate the stupid and eliminate the stupidity.

The nature of the financial industry is corruption, extortion, theft and blackmail. Bubbles are the result of the masses trying to deal with our centrally planned (and yes, it is centrally planned) economy.
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Last edited by Moderator8; 07-08-2008 at 08:24 AM..
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Old 07-07-2008, 12:31 AM
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I think the best is to take precautionary actions and monitoring...


Though, it's always back to the same old thing.

People like trying new things which are just amalgams of old things.
This lesson is never learnt because after all, it is profit and sales driven.
Anything is acceptable to be the leader and to be different.
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Old 07-07-2008, 10:21 PM
Ilyak1986 Ilyak1986 is offline
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Quote:
Originally Posted by MattTheSkywalker View Post

The nature of the financial industry is corruption, extortion, theft and blackmail. Bubbles are the result of the masses trying to deal with our centrally planned (and yes, it is centrally planned) economy.
Well what do you propose? Regulate this or that? People will continue to find loopholes around it. Want to find an industry more corrupt than your financial industry?

Politics. Most corrupt industry on the planet, and slightly behind them lawyers, because a lawyer's bribe is his pay for his fast-talk and legal loophole finding.

Last edited by Moderator8; 07-08-2008 at 08:25 AM..
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Old 08-08-2008, 02:57 PM
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I wonder why on earth we went from a stock market bust, to a housing bust? Some Bsatard/s created the scenario for such a possibility, and others just took advantage of that..and..why fannie and freddie? Whatever happened to Laissez-faire? Yuk, its just disgusting to think about the politics behind!
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Old 11-20-2008, 02:16 PM
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Quote:
Originally Posted by Ilyak1986 View Post
Well what do you propose? Regulate this or that? People will continue to find loopholes around it. Want to find an industry more corrupt than your financial industry?

Politics. Most corrupt industry on the planet, and slightly behind them lawyers, because a lawyer's bribe is his pay for his fast-talk and legal loophole finding
.
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Old 11-20-2008, 09:53 PM
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Quote:
Originally Posted by MattTheSkywalker View Post
Bubbles are the result of the masses trying to deal with our centrally planned (and yes, it is centrally planned) economy.
no, bubbles are primarily, if not exclusively, a financing phenomenon...when asset cash flow becomes insufficient to service the debt, the bubble bursts
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Old 11-21-2008, 03:25 PM
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Quote:
Originally Posted by DixieFlyer View Post
no, bubbles are primarily, if not exclusively, a financing phenomenon...when asset cash flow becomes insufficient to service the debt, the bubble bursts
Matt's point is that our system of banking and finance is prone to bubble because of the rules in which it is set up. That system is not the result of the free market, but the result of centraly planned rules and price setting.

Duration mismatch, currency fluctation, interest rate volatility, etc are the result of bodies such as the Fed trying to set a government mandated price on money and credit, combined with a highly leveraged debt based monetary system centered around a government mandated fractional reserve system.

Unless you have a sound currency and a banking system that isn't based on perpetual insolvency everything else is bullshitting. Make whatever regulations you want, your dancing around the elephant in the room.
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