The stock market is however economy-adjacent as we know dimensionally, the map is not the territory. Markets remain efficient only if enough people believe they are not, much like clubs we wouldn’t want to join because they would have us as a member. There has to be a sufficient number of investors who do not believe prices equal value, and they don’t need to be capitalists. In the 21st Century as in other eras democracy and communitarianism should remain more important than authoritarianism and greed.
Still, adjusting the distribution can have radical consequences because revolutions do cost money, and as Karl Marx said, “it’s worthwhile running some risk in order to relieve the enemy of his money.” Surely he would have endorsed a policy of “bonds by day, bombs by night” in one’s personal finance portfolio.
The now fourth(sic) major bank failure signified by the First Republic Bank bailout, is no different than the problems of Credit Suisse except in the source of the loan in the latter case being the Swiss State’s Central Bank. Other sectors have created the problems in financial capital, ones that include real estate, bonds, and crypto.
Ultimately the value questions are more than monetary, despite the attempts to blame peripheral matters for incompetent and risky behavior beyond the sums covered by FDIC. Likely this is not the last story considering the tendency toward firm concentration amidst piratical mergers and acquisitions on one side and ultra-rich, easily triggered clientele who demanded privileges with their recent windfalls and loans.
Market efficiency arises from investors’ mercenary interest in making money. Some investors spend time and money to research the value of stocks. This is costly, and some people are better at it than others. When these investors find stocks that are cheap (their price is less than their value), they buy and in the process push the price of the stock up toward its value. When they find stocks that are expensive (their price is more than their value), they sell and in the process push the price of the stock down toward its value. They don’t care about making prices right. They care about making money.
[...]
Theories are useful logical constructs that help us understand how the world works. They are not meant to be a complete description of reality, which raises the question of what real world frictions are missing from the theory. The efficient market hypothesis does not assume that the price of a security equals its value; it concludes this. This conclusion follows from other underlying assumptions. So which cosmic forces are making markets efficient? The active investors who spend their time and money researching the value of stocks and uncovering which ones are cheap or expensive. The moment that everyone agrees that markets are efficient, then investing in research is a waste of time and money. In this world, no one should invest in research. However, if no one is doing the research, which forces cause prices to converge to their value?
This brings me to the Groucho Marx Theory of Efficient Markets: “Markets are efficient only so long as a sufficient number of people believe that they are not.” My title is, of course, based on the quote from comedian Groucho Marx, who said, “I don’t want to belong to any club that would accept me as one of its members.” There are some theories that are true because people believe them—we call them self-fulfilling prophecies. This is a theory that can only be true so long as not everyone believes it and acts on that belief.
[...]
The incentive to maximize expected returns after transaction costs will constantly adjust how many resources are allocated to active investing and thus return markets to a path of continually approaching efficiency.
insight.kellogg.northwestern.edu/...
Praxis as the conjuncture of theory in action, is the manifestation of that theoretical panic and demonstrates the kind of skepticism that foments a lethal antivaxxing stupidity in resisting treatment by a theory of inaction.
For example, a libertarian view of efficient markets might assume that it’s every person for themselves no differently than resisting state intervention and privatizing all medical care signified by the greater effect of COVID on an older population. Mortality rates do not necessarily converge with infections because some folks like living. Information asymmetry, whether Trumpian disinformation or incompetence cost thousands their lives in service of winning elections in 2020.
Unlike the mercenary actions of active investors that provide the social good of more accurately pricing an economy’s assets toward risk-adjusted returns, those who trade against them will lose because of certain communitarian failures. It’s not so much cudgels as it simply is the bankrupt ‘easy money’ policies of the prior administration. It’s as it always has been, the problems of affluence rather than any scapegoating of some imaginary “woke” ideology. The real moral hazards are the powerful agents of unequal wealth inequality.
Top executives at embattled lender First Republic Bank reaped a combined haul of nearly $12 million by dumping stock just before chaos unfolded in the banking sector – including sales that occurred as recently as this month.
The stock sales are drawing scrutiny as the nation’s largest banks threw a whopping $30 billion lifeline to prevent First Republic’s collapse following a mass exodus of depositors this week.
As of Friday, the bank’s stock has plunged nearly 80% since February.
In total, company executives have earned about $11.8 million in sales this year and sold stock at prices averaging just under $130 each. The stock is currently trading for less than $27 per share.
nypost.com/…
Why did First Republic need a $30BN intervention? The Bank courted mega rich tech clients like Zuckerberg who were 'gifted' cut-price loans - and had high level of uninsured deposits over $250,000
(CNN) — It may seem surprising that First Republic, a midsize bank catering to wealthy clients in coastal states, became such a danger to the American banking system that the government had to cudgel the industry to stage an intervention.
The reason has a lot to do with the high-net-worth people who bank there.
“It’s the biggest example of a bank that could go down and shouldn’t go down — a first-class bank,” said a source close to the 48-hour deal to infuse First Republic with $30 billion in cash.
San Francisco-based First Republic, the 14th-largest bank in the country, received the cash infusion from 11 rivals, including America’s largest lenders.
When JPMorgan Chase CEO Jamie Dimon on Thursday reached out to Treasury Secretary Janet Yellen and Federal Reserve Board Chair Jerome Powell, “Very quickly the conversation turned to First Republic,” the source told CNN.
The government-organized rescue isn’t a bailout — its goal is to give the bank enough cash to meet customer withdrawals and assure investors that it can withstand the turbulence that’s shaken the industry over the past week.
So far, it’s not having the desired effect.
First Republic shares fell 25% Friday. Its rescuers are also struggling, with JPMorgan Chase down 3% and Bank of America falling 4%.
“The market is saying, ‘This is still not enough. We need more,'” Ed Mills, Washington policy analyst at Raymond James, told CNN on Friday.
Why did First Republic have a target on its back?
Investors saw similarities between First Republic and the failed Silicon Valley Bank — another midsize Bay Area-based lender with a deep-pocketed client base.
“These depositors are particularly trigger-prone,” said Patricia McCoy, a law professor at Boston College. “They’re sophisticated, they know they have other options, and they have mechanisms in place to move money quickly.”
That “particularly volatile” base of depositors presents a risk for investors, said McCoy, who helped establish the Consumer Financial Protection Bureau.
nbcpalmsprings.com/...
“I have, which will surprise you not a little, been speculating … in English stocks, which are springing up like mushrooms this year … and are forced up to quite an unreasonable level and then, for the most part, collapse. In this way, I have made over £400. ...
One biographer claims Karl Marx decided to try his hand at financial speculation after hearing of the killing that German socialist Ferdinand Lassalle was making on the stock market. Another biographer suggests that some encouragement was provided by Engels (who was part owner of a cotton mill and knowledgeable about business matters).
Further on in his letter to his uncle, Marx says that he is going to do some more trading:
“… now that the complexity of the political situation affords greater scope, I shall begin all over again. It’s a type of operation that makes demands on one’s time, [but] it’s worthwhile running some risk in order to relieve the enemy of his money.”
There is no record of how he fared. If we go by the perennial tendency of traders to proclaim their winnings but not their losses, we might conjecture that the capitalists got the better of him and successfully retrieved their capital.
Then again, maybe not. The Peking Youth Daily claimed in 1992 that his stock dealings were put aside when he got involved in the founding of the Communist International. “But pity that his capital was too small,” the publication lamented.
What about Frederick Engels? He had some investing savvy thanks to his business background, which included a seat on a stock exchange. When he retired in 1870 at the age of 49, his portfolio was worth, in today’s money, about £1.2-million ($2-million), according to British historian Tristram Hunt in The Frock-Coated Communist. When he died 25 years later, it was worth the equivalent of £2.2-million. Holdings included shares in the London and Northern Railway Co., South Metropolitan Gas Co., Channel Tunnel Corp. and Foreign and Colonial Government Trust Co.
During retirement, Engel’s portfolio produced an income sufficient to cover his living costs, as well as provide Marx with an annual subsidy of £380. This effectively gave both men membership in the rentier class, which many communists despise.
Engels had a rationale for why it was okay to be a rentier. It went like this: Trading stocks “simply adjusts the distribution of the surplus value.” It doesn’t expropriate it from the workers.
www.theglobeandmail.com/...
Most times when people say "the stock market is not the economy," they mean the day-to-day performance of major stock indices that track the value the nation's biggest firms, like the S&P 500 and Dow Jones Industrial Average, bears little-to-no reflection on what's happening in most Americans' lives.
journalistsresource.org/...