[OPE] Martin Wolf politely tells it like it is...

From: Jurriaan Bendien (adsl675281@tiscali.nl)
Date: Sun Jun 29 2008 - 05:29:14 EDT

Sober words from the editor of the Financial Times:

"The efficient market hypothesis-which emerged in its many variants in the 1970s-is not looking very convincing now. We have just had two of the biggest bubbles ever measured-the stock market bubble and the current credit-cum-housing bubble-in the most sophisticated economies in the world. This is not happening in Korea and you can't blame it on crony capitalism in Thailand. This is in the US and Britain, and these events simply cannot be reconciled with any version of the efficient market hypothesis. 

Therefore the insights of somebody like George [Soros], or like Robert Schiller, who looks at this in terms of behavioural economics, or Hyman Minsky's theories, seem to me a much better account of how financial markets actually work than the views of orthodox economists from ten or 15 years ago. 

The financial markets cannot be given the benefit of the doubt in quite the way that they were before. So the regulators have to start by thinking, if we let these guys do whatever they like, we might face big problems. 

This does not mean, of course, that we want to close down financial markets and have government-allocated capital. That is a lousy alternative, and we know financial markets do lots of things very well. We want them to exist, but we need to reduce as far as possible the consequences of extreme stupidity and extreme cupidity. 

That means looking at many things from less pro-cyclical capital requirements, to incentives, to liquidity requirements, to more regulation of products sold to consumers-the mortgage lending that went on in the US was simply criminal. But we also have to understand that we are not going to completely eliminate danger. We can reduce it by various mechanisms, but we are dealing with people who are brilliant at getting around regulation-so we can regulate banks, but we end up with hedge funds and so on. In addition, even if we had a single global regulator we would have many countries pursuing different policies, some of them at odds with one another." http://www.prospect-magazine.co.uk/article_details.php?id=10254

(Will Hutton comments on hedgefunds: "A multi-billion pound business has emerged in which shareholders lend their shares to hedge funds to be played with. For a tiny fee, a hedge fund will arrange to borrow shares from a great insurance company or pension fund which it proceeds to sell. Share-loans are believed to exceed a stunning 7.5 trillion. (...) British firms no longer have long-term owners who share their long-term mission and purpose. Instead their owners have become their enemies." http://www.guardian.co.uk/commentisfree/2008/jun/29/investmentfunds.creditcrunch

Well, she used to run around with every man in town
She spent all my money, playing her high class game
She put me out, it was a pity how I cried
Tables turn, and now it's her turn to cry
Because I used to love her, but its all over now

- Rolling Stones, "All over now"

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