Quote of the Day

"Is there something obviously distortionary or market-abusive about me entering into a contract today to deliver a stock at a known price one week from now without me owning the stock today or borrowing it today and holding the stock for another week?" - Willem Buiter

Notes:

Umair Haque: I think there just might be: it distorts the relationship between shareholders and management. Any incentive shareholders might have had for value creation in the long-run vaporizes (with predictably perverse results). If shareholders aren't in it for the long-run, what's the point of equity? There isn't one: the edifice begins to crack.

If we're really going to argue that short selling is healthy because it aids price discovery, we must also ask: where was this so-called price discovery for the last decade? Why does short selling as price discovery only work when crises accelerate? Conversely, if yesterday's price discovery is meaningless tomorrow, perhaps the real problem is that the institutions we've built aren't adequate for a hyperconnected world.

"A stockmarket is a mechanism of price discovery and should be regulated only with regard to the accuracy of numbers and facts."

Really? Maybe in a textbook - in the real world, today's so-called stock markets are more like mechanisms of information manipulation with almost zero accuracy in terms of "numbers and facts". So perhaps if we focused a bit less on the numbers, and a bit more on the logic, we'd have morepower to understand what's really going on.

What's really going on? In a world of marginal resource scarcity, the value of efficient resource allocation is going to explode.

But can we really trust markets as we know them to allocate resources efficiently anymore? Especially when the only jobs that pay are those that have mostly to do with, well, making markets fail?