The Last Capitalist

A site dedicated to restoring individualism in the United States of America

Even Smart People Can Be Stupid

Posted by jemartynowski on August 5, 2009

Mark Dow, a hedge fund manager, was on video on Yahoo’s finance page here talking about how dumb people are who still believe in free market ideology.  Dow is a pretty intelligent person.  He understands  how markets work and he probably does a pretty good job of determining values of assets.  He most certainly knows a lot of facts about the market and the entire banking/housing problems the country has experienced.  Despite all of this, he’s pretty stupid. 

See, he believes that the free market is why everything failed.  The free market is why the housing market collapsed and why the banks were doing really stupid things.  He goes so far as to say people “don’t recognize the extent to which it failed.”  It makes me sick that someone so intelligent can have such a weak grasp on reality. 

Dow is basing his assumptions on the fact that banks became so crappy because government wasn’t forcing them to do certain things.  This logic is flawed.  The banks were doing and have been doing most of what they do because of political and legal pressure.  Plus, if there weren’t government-created organizations promising to buy bad loans, they would have never been made in the first place. 

I would argue that the opposite of what Mr. Dow says is true.  Had the government been hands-off, we would have never seen the housing market’s incredible, ill-advised run up.  That’s not even mentioning the fact that banks were sued and protested against for not giving loans to people buying houses in parts of the country which could best be described as sh*t.  If you had to make those decisions, would you loan money to someone buying a house in the crappiest neighborhood at a price you thought was way too high?  No, you wouldn’t.  Well, if you were a bank, you’d get sued.  Then, they’d protest your branches and call you racist.  This is followed by the federal government telling you to make those loans and they will guarantee them with Freddie and Fannie. 

Do you know what the result of that would be?  Me too!  Just what happened.  So please, Mr. Dow, don’t try to sell me some liberal spending agenda.  I understand that you want an excuse for the government to give money to people you think deserve it, but, as we’ve gone over many times on this site, that’s just not possible and it’s just not right.

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9 Responses to “Even Smart People Can Be Stupid”

  1. theexantefactor said

    i think you missed his point – the banking system failure was simply the icing on the credit bubble cake which was the final culmination of supply-side laissez-faire economic policy born out of the failure of the last cycle of too much government – he is just pointing out the cycle i don’t think he’s taking sides – you must still be in the denial phase

  2. geoih said

    Quote from Theexantefactor: “… supply-side laissez-faire economic policy …”

    What universe are you living in? Do you honestly believe that with all of the government regulation and interference with the economy in that last 100 years that we somehow have laissez-faire economic policies?

    I think you need to look up the word laissez-faire.

  3. jemartynowski said

    Right, Geo. The point I’m making is that there has not been anything resembling laissez-faire economic policy in something close to a century. Since the Great Depression, our nation has been continuously adding more and more regulations to pretty much everything there is. The cycles he describes is true in terms of the attitude of common Americans, sort of, but the only real loosening of the government’s grip has been the tax changes. In reality, that’s just a small part of government control.

  4. theexantefactor said

    um, lets see, we had a completely unregulated credit derivative market that grew to over 4x this size of our economy before it blew up the banking system because no one knew who held the risk – where was the gov’t regulation in that, in AIG, in Madoff, in Stanford, HFs, Private Equity, Investment Banks, Chinese Walls, the countless others scamming the unregulated system, etc?
    just because there are regulators doesn’t mean they are regulating

    anyway the guys point is on a relative basis – you guys probably would like to have complete anarchy in markets – all Dow is saying is that the cycles go to extremes and then reverse – he is right, regardless of the level of free markets you wish to achieve.

    • geoih said

      “where was the gov’t regulation in that, in AIG, in Madoff, in Stanford, HFs, Private Equity, Investment Banks, Chinese Walls, the countless others scamming the unregulated system, etc?”

      All of these things are/were already regulated, but like all things government does, the regulation is completely politicised and incompetent.

      The all powerful and altruistic regulators weren’t watching AIG, and to cover themselves and their friends, bailed them out (with our money). They weren’t watching Madoff, and self-rightously prosecuted him and polished their halos (i feel so much saver, now). The incompetence goes on and on, yet the only solution you can come up with is to give these same idiots more power, because somehow now they’re smarter now and won’t let any more bad things happen.

  5. jemartynowski said

    Look, there’s a lot to respond to in that comment, so I’ll do what I can:

    First, I want to get something straight: I am not for anarchy. I believe there needs to be rules to prevent people from stealing. You cannot have a fair market if that does not exist.

    Second, I hate the AIG and derivatives market argument because, AIG’s stuipdity aside, it was mostly a symptom, not the disease. There is much more involved with why there were so many defaults and why AIG was wrong to hold so much of that garbage, and it basically comes back to the forced housing boom, the government manipulation of interest rates, and, of course, AIG’s mistakes. Mostly, the Federal Reserve is the main culprit for many reasons, not the least of which is that it exists at all. By necessity, the Federal Reserve will create booms and busts. They’re the ultimate market manipulators.

    The “unregulated derivatives market” is a very common scapegoat but the reasoning behind that is flawed.

    Oh, and if we just let the individual companies like AIG fold, we would learn that it’s not the end of the world. Plus, the credit default swaps and such work better than the pretty much completely government controlled mortgage industry (hell, it was created by Fannie and Freddie).

    Finally, the scammers are not a product of an unregulated market. They are the product of a crappily run regulatory body. Why? Because we let the government do it. We put our faith in the government to have our best interests at heart (they don’t). There were no fewer than six letters written to the SEC about Bernard Madoff that were probably just thrown away. Nothing was done. They were too concerned with making me (I’m in the industry) sign four forms and get approval from our compliance office so that I can go to the bathroom.

    Don’t bring that weak stuff in here.

    • theexantefactor said

      i think we basically agree especially regarding the Fed – when its all said and done the Fed should be abolished and we should let the bond market set interest rates, the Fed follows the 2YR note anyway – but the CDS market was unregulated by a laissez-faire SEC and when they realized that trades were being recorded on sticky notes it was too late – the problem is that derivatives contain risks that regulators and gov’t officials don’t realize – negative convexity is as much to blame for the crisis as anything but i bet that Bernanke doesn’t even know what it is

  6. theexantefactor said

    btw you should remove your link to George Will – he is an certifiable douche bag who knows nothing about how markets work

    what is it about you guys wacking off to the likes of Ayn Rand and George Will? just because you read Atlas Shrugged doesn’t mean you are a real free market capitalist – what are you a stock broker? grab some nuts and go trade some bonds in chicago, then you might be able to talk about the virtues of free markets……

  7. jemartynowski said

    Right, I just read Atlas Shrugged so now I think that free markets are cool. I don’t really understand or believe anything about Objectivism vs. Facism. I especially just take whatever George Will writes as gospel. Also, I can’t think for myself.

    Why are people who are so against free markets immediately attack people as Ayn Rand desciples. Do you even know what the philosophy of Objectivism entails? Have you read anything by Rand other than Fountainhead or Atlas? If so, did you understand it?

    Seriously, though, I do love me some bond market and you’re right, sort of, about how it’s much more in-depth and fun to analyze. However, that doesn’t mean it’s exemplifies the “virtues of free markets” better than anything else.

    I’m done with this argument because when it gets to the point of attacking someone’s free market ideals by saying they just mimic Ayn Rand means you’ve gotten to the end of your rope. You can continue because I’m not opposed to opposing views here. I actually appreciate you challenging me.

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