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There is real meat in the markets. But when the operative mood of many market players (especially newcommers) is "Just buy something, it all goes up", there is plenty room to set "professional" insider games.

People like to make easy moey, especially now. We are at a top point of the cycle of greed - "everyone" acts asif believing that maney can be made easily perpetually. (Yeah, there is no free lunch - if government assists. But otherwise, prosperity can grow ever more continuously.)

The most effective way to make easy money is a Ponzi scheme (or similarly, a pyramide scheme). They work especially well when there are many people seeking easy money, like it was in Russia and Easter Europe in the 1990's. The most smart blocks can profit handily from massive eagerness. (Poker works the same way, largely.)

Ponzi and pyramid schemes are illegal, of course - too many people inescapably suffer. But a Ponzi scheme does not have to be crystal clear or rigidly designed. Just throw in some ingredients - a steadily growing market, "assuredly" increasing asset value, a flow of newcommers, extra stimulation of demand - and experienced traders already recognize that they don't have to follow the value of their hands, they just have to get timing of Ponzi-lite trading right.

Hyman Minsky build a theory how unstable Ponzi financing patterns emerge from a prosperous or innovative economy phase.

Most disturbingly, the Bush administration was consistently bringing in Ponzi ingredients with its tax policies. That was a pretty sure way to deliver a booming economy - hardly anything can match a Ponzi boom. At worst, their insider ring might have had a hidden Ponzi idea from the outset...

by das monde on Wed Mar 21st, 2007 at 10:36:37 PM EST
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