----- Original Message ---- From: John Williams <[EMAIL PROTECTED]> To: Killer Bs (David Brin et al) Discussion <brin-l@mccmedia.com> Sent: Tuesday, September 23, 2008 11:16:58 PM Subject: Re: Meltdown
Gautam Mukunda <[EMAIL PROTECTED]> > But > such a stampede could cause lots of otherwise fine companies to go under, > which > would cause still more companies to go under, and so on, > It's hard to imagine _anything_ worth the risk of going > through that when interventions can prevent it. So, you imagine a problem, make it plenty scary, then imagine a solution, and say that a few people can magically do it. It is a good thing you guys are so much smarter than the rest of us dumb market peons, what would we do without you? You may not be a politician, but you have the mindset down perfectly. Let me try one. My god, there are thousands of asteroids in the solar system and one could slam into earth at any time. Billions would die! Mass hysteria! Dogs and cats, living together! But I have a PLAN! I can save us all! Just give me $700B and I will avert the disaster! Whadya say? Me: Well, I say I'd go to astronomers, and astrophysicists, and aerospace engineers. And I'd find the best ones in the world. I'd ask them - what's the risk of this happening? What's the best way to prevent it? How much would it cost? Then I'd decide if that was worth the risk. What would you do? Judging by your feelings about finance, none of those people would be worth consulting. Are you, by some chance, one of the best astronomers, astrophysicists, or aerospace engineers in the world? Is there some reason I should believe that you know what you're talking about? <snipping stuff> Quite simply, ego. You don't know nearly as much as you think you do about what will happen and how you can control it. You run around wild-eyed telling us how the world is ending but don't worry, you know how to save us. Then you do something, the world does not end, and you claim you saved us. Sorry, I have much less confidence in politicians and people like you than I do in the collective self-interest and creativity of a large group of talented people to solve problems competitively. Me: OK, your argument, just to be clear, is that you don't know anything about finance. You have no experience with financial markets. You don't know anything about me (so how do you know you shouldn't trust people like me?). You are aware of the overwhelming consensus of people who do have experience in finance, who have studied financial markets, and who (like me) have absolutely nothing to gain by exaggerating (or minimizing) the risks...but you think from a vague first principles belief in "large groups of talented people" (the same large group, it's worth noting, who caused this problem in the first place) that nothing should be done (even though the members of this large group are universal in their belief that something must be done) and you think it's _my_ ego that's the problem? You're welcome to that belief, but, well, I'm a political scientist. I believe in _data_. I believe in theory too - my work is highly theoretical - but theories need to be grounded in clear causal mechanisms and tested against the empirical evidence. You _still_ haven't come up with a historical example. Not one. You're talking about isolated bailouts of firms (and it's worth pointing out that, so far, the AIG bailout has worked - the markets have not collapsed, even though they came pretty close, so this cuts _against_ your argument, not for it). My point was that an organized and skillful bailout of an entire financial sector in panic can, and has, worked in the past. Even more so, you don't seem to understand what I've been saying, so let me try again. _My whole point_ is that we don't know what will happen. We know there's a chance of the next Great Depression. _We don't know_ what the odds of that happening are. Had the money markets collapsed, the odds were very high (in my opinion) but they haven't yet, so we just don't know. However, the best people in this field think that the odds remain uncertain but significant. _Given that fact_ almost all of them feel that it's worth risking significant amounts of money to minimize the risk. I'm the one saying "We don't know what's going to happen, so we should play it safe." You're the one who seems to be arguing that your understanding of markets is so total that you can predict that only the bad companies will fail. Well that might be true. You're _so certain_ that's true you're willing to wager the an unknown possibility of a second Great Depression against it. I'm _so uncertain_ that I'm willing to pay significant costs to insure against the possibility. So I have two simple questions for you. What do you think the odds of such a collapse occurring are? 1% 5%? Whatever number you pick - what do you think should be done to lessen that risk? Nothing? If so, do you not buy health insurance? Best, Gautam _______________________________________________ http://www.mccmedia.com/mailman/listinfo/brin-l _______________________________________________ http://www.mccmedia.com/mailman/listinfo/brin-l
