An Annoying Market Failure - page 3.

JeffK

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I never hashed for this...

Quote from: NghtRppr on September 04, 2011, 03:49:45 PM

Quote from: JeffK on September 04, 2011, 03:44:47 PM

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?

NghtRppr

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Elder Crypto God

Quote from: onesalt on September 04, 2011, 09:37:40 PM

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.

onesalt

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Quote from: NghtRppr on September 04, 2011, 08:04:18 PM

Quote from: onesalt on September 04, 2011, 07:33:11 PM

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.

AyeYo

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Quote from: NghtRppr on September 04, 2011, 03:49:45 PM

Quote from: JeffK on September 04, 2011, 03:44:47 PM

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:

Quote from: FirstAscent on September 04, 2011, 12:29:34 PM

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

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Quote from: onesalt on September 04, 2011, 07:33:11 PM

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.

onesalt

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Quote from: becoin on September 04, 2011, 04:27:20 PM

Quote from: onesalt on September 04, 2011, 04:19:26 PM

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.

Sovereign

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

Works every time

becoin

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Quote from: onesalt on September 04, 2011, 04:19:26 PM

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...

onesalt

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Quote from: becoin on September 04, 2011, 04:12:48 PM

Quote from: Hawker on September 04, 2011, 03:52:50 PM

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

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Quote from: Hawker on September 04, 2011, 03:52:50 PM

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.

NghtRppr

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Quote from: Hawker on September 04, 2011, 03:52:50 PM

The system hasn't worked.

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

MatthewLM

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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.

Hawker

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

NghtRppr

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Elder Crypto God

Quote from: JeffK on September 04, 2011, 03:44:47 PM

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.

JeffK

sr. member

Activity: 350

Merit: 250

I never hashed for this...

Quote from: NghtRppr on September 04, 2011, 01:46:55 PM

Quote from: JeffK on September 04, 2011, 05:36:52 AM

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

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Elder Crypto God

Quote from: JeffK on September 04, 2011, 05:36:52 AM

Markets are people...

FirstAscent

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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.

becoin

legendary

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Merit: 1233

Quote from: Boussac on September 04, 2011, 09:56:45 AM

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!

Hawker

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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.

Boussac

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e-ducat.fr

Quote from: becoin on September 04, 2011, 09:43:26 AM

Quote from: Hawker on September 04, 2011, 05:31:25 AM

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.

Topic: An Annoying Market Failure - page 3. (Read 3811 times)