Reply #14: I seem to remember that people are fallible. [View All]

[originalpckelly]

It's the primary problem of our fair capitalism, it's really not capitalism, it's all planned economics. It shouldn't be necessary to collect historical data in a free market on such a large scale. The problem is that they want to know the unknowable, or at least the unknowable without spending more money to figure it out.

I would guess that it takes more analysts (aka planners) to determine the risk level of an investment than it does to base it off of a bullshit feedback loop. It's really easy to look-up the price of something on an index, it takes a lot of work to go research the loans being made and the people receiving it.

What happened is that they wanted to get away with a real market, when in reality it's a planned economy. Price indexes work in actual markets with actual products, like goods and services, not esoteric financial products. There is a decoupling of the perceived value of a product and the actual value of the product, and it would seem to be an open invitation to faults like what's gone on. There is no direct feedback, aside from dividends, in stocks. A company can be running a loss, which is totally unknown to the public, until it releases it's earnings. The stock price doesn't reflect the diminished value of the underlying company until the information is released, when in reality the value of the company was always decreasing as it lost more and more money. It's this latency between an event occurring to increase/decrease the real value of something and the reaction to the event that is killing our system. Feedback builds up, and then is released in shock waves, instead of smoothly correcting a price down, it happens all at once.

It's an information problem, and these idiots tried to solve it, but failed miserably. The only way to solve it is to reduce the cost to the system to react, to decrease the latency between the feedback and the reaction on the part of a decision maker.