taojaxx

Justin Fox on Regulatory Reform and Market Irrationality

Funny how the debate gets hijacked by pro/anti regulation ideologues.
Markets do not exist separately from market participants and reflect their rationality/irrationality of the moment. There is no market steady state of any sort: it is an ongoing process where supply/demand most of the time tends to rationally discount all known information and some of the time simply discounts the fad of the moment, hence the bubble with positive feedback trading (the higher it goes, the more I buy).
As to the dotcom being based on equity and real estate on debt hence the difference in impact, that's not true: dotcom was based on debt as well (ever heard of margin accounts?). The dotcom simply hit household as banks didn't own inflated stocks and only marginally financed stock speculators. Real estate hit banks' mortgage portfolios big time and their subprime holdings, crippling the financial sector and cutting off credit to the whole economy. It's like being hurt in the arm or leg (dotcom) and being hurt in the lungs or heart (subprime).