Let The Free Stupid Market Fail Supreme

[tongodeon]

Efficient markets must be free from moral hazard to operate efficiently. People who make bad choices should suffer bad consequences. Stupidity should be painful for people who make bad choices, not for people smart enough to avoid bad choices. Otherwise, what incentive do they have to make good choices? I'll explain how it works

Comments

[bax]

Thank you, thank you, thank you for your mighty blog posts.

They are awesome.

[dbrottman]

Awesome.

[zadcat]

The thing I keep having to remind people of now, though, is that a year ago, if your bank or your investment advisor or whatever entity you chose as proxy to invest your money didn't invest in these dodgy financial instruments, and you made 1% profit while your friends were making 3% (or, say, 12% if they were rich enough to invest with Mr. Madoff), you'd have been in your rights to be angry with them and withdraw your business from them. And anyone working for or advising investment entities who recommended a fiscally conservative policy of not putting some or all of their funds into these dodgy instruments would've been laughed out of their job.

It all looks different from the other side of the burst bubble.

[tongodeon]

if your bank or your investment advisor or whatever entity you chose as proxy to invest your money didn't invest in these dodgy financial instruments, and you made 1% profit while your friends were making 3% (or, say, 12% if they were rich enough to invest with Mr. Madoff), you'd have been in your rights to be angry with them and withdraw your business from them

The libertarian argument is to say that you're certainly within your rights to do this, and that if you didn't ask for a safe investment you made a bad decision and were stupid and deserve to lose all your money from the risk that you accepted.

What they don't seem to understand is that if a brokerage goes down, all the accounts go down whether or not they were invested wisely. Or if a bank fails it's not just the people who elected to invest their money in high yield CDs that can't get their money out. If there's a run on your bank because they can't preserve confidence you made a bad choice depositing there, you were stupid, and you deserve not to get your money back. It's

[tongodeon]

I'm not sure I quite buy tongo's argument either. That is to say, I didn't buy a house, I didn't didn't invest in real estate or give it to an institution that bought mortgages, CDOs, or lent money to people who did ...If you have an account in any sort of bank or lending institution you almost certainly *did* invest in real estate or give it to an institution that bought mortgages, CDOs, or lent money to people who did. That's what banks do. And that's what's causing the bank run that renders your bank insolvent. That's how they can afford to pay interest. The same is true if you have a car or health insurance contract. Insurers invest your money until you need it to pay a claim. If you picked a bad insurance company that made bad decisions and they go bankrupt, you're going to lose the coverage that you paid for

[schwa242]

Kind of the point I was trying to make with my most recent (albeit juvenile) entry. Damn near everyone is to blame (excluding of course, your exception above), and I'm getting ticked off at people drawing battle lines in the sand and declaring class warfare or cultural warfare over this mess. Let he who is without sin and all that.

[haloumi]

In news just in, the Envira Indians are 'devastated' by the collapse of the orange bodypaint market.

Tribal leader Qxcyt'! has been called to account for the loss of the tribe's 17 sacred conch shells in what market experts are describing as the largest single movement in ochre since the Splash of '29. Oxcyt'! hasn't been seen since the news came out, although informed sources believe he is "...in another hut, somewhere over there".

In related news, the value of the conch continues to climb, defying the predictions that it would crash through the milligoat baseline this month. The sacred conch is now trading as high as 1 goat, with more variability in the fickle poultry market, and a rating between 4-7 chickens.

Standard and Poor have downgraded the Envira to AA.

[epileptikitty]

And yet, with the new public knowledge of the conch futures markets, everyone still persists in mispronouncing it with a soft 'ch'.