On 5/11/07, David B. Shemano <[EMAIL PROTECTED]> wrote:
>> The main disagreement I have with your ideas is that I think these
>> non-idealities are all pervasive in the real-world capital markets
>> whereas you think that the markets work as expected from theory for
>> the most part with only minor distortions.
No, I am not talking about an ideal capital market -- I am talking about the
actual existing messy chaotic capital market. Everything you identify as the
problem of taking non-income generating intellectual property as collateral is
not a secret -- it is precisely why the Sears story is news. It is very
possible that the market is going to agree with you that the added benefit of
such intellectual property as collateral is so minimal (because of the risks
you identify and others) that the market is going to price the asset-backed
securities as essentially unsecured. However, if the market disagrees with you
and treats the collateral as sufficiently valuable to lower the interest rate
compared to an unsecured loan, it will be with eyes wide open and not because
Sears and the bond salesmen pulled a fast one. The market may turn out to be
wrong, but the fact that the market may be wrong does not mean that it was
snookered in the sense you are assuming.
I think I understand what you are saying. This discussion has probably
reached the point where further consensus is impossible and we have to
agree to disagree, but I have one last comment.
This view of the markets that you have described seems unscientific in
the Popperian sense. If the securities are priced correctly then the
market works. And if they are priced incorrectly, well the market was
wrong, but that does not mean the market failed because it still did
the optimal thing under the circumstances.. In other words no set of
outcomes can ever contradict the assumption "the markets cannot be
snookered".
It is simply not falsifiable. Btw this by itself is not a knock
against your thinking because (as I understand it) Marxism is not
falsifiable either.. And in any case who cares what Popper thinks.
Still all else being equal a falsifiable theory is nice to have.
-raghu.
