On Wed, 2009-09-23 at 17:15 -0500, raghu wrote: > On Wed, Sep 23, 2009 at 3:48 PM, c b <[email protected]> wrote: > > There has been insufficient appreciation of the positive role that > > shorters played in this story. They were the ones that effectively brought > > the speculative party to an end. By dumping bonds and buying up credit > > default swaps on the sick financial giants' debt, in addition to shorting > > their stock, the shorters made it impossible for these companies to > > continue their reckless ways. > > > > Of course the shorters were not trying to perform a public service. They > > were trying to make money. However, in pursuing profits, they did what the > > Fed failed to do: they brought the dangerous inflation of a housing bubble > > to an end. > > > > It is a bit surprising to see Dean Baker write in praise of > speculators. That said, how does Baker's theory explain the mysterious > absence of short-sellers earlier in the bubble cycle? In other words, > how did these insightful people allow the bubble to inflate to such > monstrous proportions in the first place?
A short position is very hard to maintain a long time when the market is still going up. You face monstruous losses at "mark to market" and so you need backers with very deep pockets. When you're in a long position you can always pretend that stocks will always outperform other investments over the long run, you cannot loose money when buying a house, etc... and it's far easier to maintain a loosing long position. Another version of the same truth: "The market can stay irrational longer than you can stay solvent." (1) The important point in Dean Baker message is: "The problem was that the clowns who ran these institutions somehow failed to see the largest asset bubble in the history of the world." And with Angry Bear (and Charles here on pen-l), Dean Baker is the only economist so far who did publically say that the unemployment as measure was indeed problematic in answer to my comments and data on his blog. Laurent (1) http://en.wikiquote.org/wiki/John_Maynard_Keynes _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
