EEL Mk2 wrote:Actually that is not true. If a business in the 'real' market goes bust, how many people will lose their jobs? Ten? Fifty? Even if it's a very large business, a few thousand, perhaps? Whereas when a significant bank goes down, this has a systemic impact on the entire financial system due to the potential for contagion in financial markets (another weakness which is largely unique to financial markets), and the whole system freezes up. This obviously has a catastrophic impact across the entire economy.Amazeroth wrote:That's no different than when we say that it's fine if failing businesses go bankrupt in the "real" market, and there are usually even more people losing their jobs and homes because of that.
Well, it always depends on the size fo the business, but there can be (and have been in the past) a lot more than 1000 jobs in the balance. Also, if it's a large business, it will take others with it, who have depended on contracting to this business.
Also, the reason why a bank going down has that much of an impact is not the financial market, but the real one - everyone has money there, or depends on the ability to take loans. And with everyone I mean consumers and businesses alike. So the problem with banks going down rests with the nature of the bank - the financial market is rather removed from it.If you acknowledge that financial markets require some sort of regulation, then surely you cannot, at the same time, maintain that financial markets are not inherently flawed in some way that goes beyond the ordinary potential for market failure in some circumstances.Amazeroth wrote:Also, the GFC, while happening mainly on the financial market, was not really caused by the nature of the financial market system, but by inadept regulation amounting to sheer irresponsibility in some cases, especially in the (failing or simply missing) regulation of banks, and of course the rather embarassing failure of the rating agencies themselves.
That doesn't make any sense - every market needs to be regulated (in order to be free) - which is why theft and fraud still need to be outlawed even in the freest of markets. One of the most important reasons a free market works in the first place is the availability of correct information, and that has to be provided (to a degree) by regulation - ie outlawing fraudulent behaviour.I would not have the audacity to go through the stock market and tell your which assets were overpriced, but given that there is a theoretical potential for mispricing which is largely unique to financial markets, and given the size and depth of financial markets, it is inevitable that a significant number of assets are problematic.Amazeroth wrote:There is no surefire way to really assess the worth of a company apart from the point of sale, and much less the worth of future trades.
For now, you'd still have to present evidence that mispricing is largely unique to financial markets. Also, size and depth wouldn't matter, since significance could only exist in relation, whether it's 25% (or whatever you find significant) of 10 or a million is irrelevant to significance.Firstly, I don't accept that that motive occurs to the same extent given that the end goal of product markets is to produce something for consumption, not, primarily for investment. Secondly, I think that we have earlier established the systemic significance of financial markets which is entirely absent in the market for apples or whatever - almost any product market, in fact. So it is simply not true to say that there is an equivalence between the impacts.Amazeroth wrote:We have that speculative motive in product markets too, though. And, depending on how many trades are done with a product until it reaches the consumer, it doesn't necessarily have a smaller impact than in financial markets.
That's not the point of what I said - what I said was that you can't really fault the financial market to be speculative, when you don't fault the real market for that - because your point would only be valid if you somehow showed that speculation itself was inherently bad. If it's not, then a market is not automatically more problematic if it is more speculative.Under those circumstances, those people would be punished by the market. They would lose money. In financial markets, because you have shifting demand curves in response to higher prices, that would not happen. I am not saying that stupid behaviour does not happen in product markets, merely that product markets are not as susceptible to failing to correct for that.Amazeroth wrote:Yes, but that's no different from when a trader buys too much apples, or a farmer planting too many apple trees. Or a consumer mistakenly buying more than he can eat.
Financial markets are just as effective in correcting that kind of behaviour - if they're not overregulated. Your point would only be valid if the shifting demand curve would somehow result in a price increasing indefinitely, which is impossible.Well, there are a few hundred companies, and I suspect you're not familiar with all of them. But I strong suspect that some of them are probably going down the toilet.Amazeroth wrote:However, glancing over the list of companies in there, I don't see anything I'd have heard of as failing or stagnating since 2008
There are only 30 constituents in the Dow, have a look and tell me which of them you think are due for a plunge. It's not that easy.