Half empty

by Russ Roberts on June 7, 2009

in Financial Markets

Pessimism on financial markets and the economy from a New York Times op-ed. Superb. Long but worth reading the whole thing. The first point about salaries strikes me as unnecessary because there is so much caution right now. The rest is fantastic.

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{ 6 comments }

Bret June 8, 2009 at 12:03 am

I'm very surprised that Russell Roberts finds this article "superb" since it seems to call for a much expanded role of government.

The following are some examples (interspersed with snarky comments):

"Gas-guzzling S.U.V.’s, cigarette boats, no-income mortgages and private jets should be relegated to the junk heaps of history…"

So the government should decide that people should no longer be allowed to choose what sorts of vehicles they can purchase?

"In our view, one of the ways out of this economic conundrum is to have experienced traders — not hothouse flowers — design incentives that will encourage the market to have buyers and sellers meet anew around the proper valuations of assets,…"

In my view (having been a trader), traders, experienced or not, do not have a perspective that's high level enough. Even if you take a fairly sophisticated trader, let me ask – do you really want someone like George Soros designing incentives? For the government to enforce?

"The New York Stock Exchange really exists in name only, as computers execute a very large percentage of all trades, far away from any exchange. As a result, there is little flow of information, and small investors are paying the price."

You think the brokerage houses didn't take advantage of the small investors prior to computerized trading?

"Not a single top executive of a Wall Street securities firm responsible for causing the financial crisis has had the courage or the decency to step forward in front of the cameras and explain to the American people in his own words exactly how and why he allowed his firm to cause the crisis."

And who willingly volunteers to appear before a lynch mob? And do we think that these individuals really knew they were allowing a systemic risk to form?

"Such a public hearing…"

More government involvement. Yuck.

These are good ideas why?

Grant June 8, 2009 at 8:14 am

I only could read as far as the disclosure. How am I supposed to take this seriously, even if it is well-written and on-target, when one of the authors is a criminal? Don't you think there is some bias inherent in his/their "solutions?"

Methinks June 8, 2009 at 10:04 am

"The New York Stock Exchange really exists in name only, as computers execute a very large percentage of all trades, far away from any exchange. As a result, there is little flow of information, and small investors are paying the price."

Right. Electronic trading – where specialists can't rape customer orders. Electronic trading seems like a bad idea only for people who have no clue how floor trading works. When orders used to have to come to the floor, spreads were wider as a limited number of participants could charge more to make markets.

Flash Gordon June 8, 2009 at 11:57 am

I started reading this article and stopped after this sentence:

"Gas-guzzling S.U.V.’s, cigarette boats, no-income mortgages and private jets should be relegated to the junk heaps of history, or better yet, put in a museum dedicated to never forgetting the greed and avarice that led us so far astray."

This is nonsense writing by someone who likes big government making decisions that should be made by buyers and sellers who accept the risks and rewards for their decisions. How anyone who calls themselves a free-market libertarian economist can call this "superb" is a mystery to me.

Christopher Renner June 8, 2009 at 12:58 pm

I'm a bit confused too – the article seemed rambling and incoherent. Not sure what I'm missing, other than an NYT op-ed acknowledging that people respond to incentives as opposed to inspiring rhetoric.

LowcountryJoe June 8, 2009 at 3:35 pm

Me too. I read it and saw more that turned me off than engaged me. I'm not sure what you found superb, Russ. There was quite a bit of criticism levied at the president. And perhaps it is refreshing to see some criticism placed his way for a change but much of it seemed for reasons I didn't agree with or didn't find all that compelling.

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