Arnold Kling  

Vernon Smith on the Bailout

Chuck's Great Question... Oh, No!...

He writes,

During a bubble buyers are everywhere. Then, suddenly, they disappear, waiting, watching, delaying, reluctant to buy assets that others might not. That buyers will disappear in a bubble is predictable, what is never predictable is the timing. In his 1933 inaugural address, President Franklin Roosevelt said "the only thing we have to fear is fear itself." Yes, but the return of fearful buyers is just as unpredictable as the timing of their disappearance. And only the most arrogant will pretend to know what public policies will restore buyer "confidence."

...There are only three kinds of buyers in a downside housing/mortgage or equities market: those who buy too soon; the few who roll an 11 at the bottom; and those who are too spooked to buy until well after the crisis is over, if ever.

I will likely buy to soon. I already did a little bit a couple of weeks ago. But I think that the nonfinancial sector of the economy looks pretty good.

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COMMENTS (3 to date)
rhhardin writes:

What makes money valuable is that you will accept it back (which is why a counterfeit bill that you don't know is counterfeit is actually worth something, a successful theft from the Treasury).

This is a system with two solutions, however. The other solution is that you won't accept it back, because neither will the other guy.

There's no dynamical theory for systems with two solutions. Whatever happens, happens elsewhere than the analytics.

Another system with muliple solutions is created whenever securitized risk completes a circle.

Philippe writes:

Dear rhhardin,

would you care to explain to last line:

"Another system with muliple solutions is created whenever securitized risk completes a circle."

I find this interesting but I am not quite sure whether I get it right.



david sun writes:

Evidently, the bailout thing didn't remove or reduce any fear. So we still have to fear the fear itself.

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