Paul Woolley: "The Market Has Become Dangerous For Humanity...It Isn't Reaching Equilibrium, It Is Falling Into Chaos"
For anyone who is still confused why the tail-wags-dog reverse relationship of the stock market as a leading indicator to the economy, and to western civilization in general, can be a problem for said civilization (not to mention the former) once the current iteration of central planning loses control over everything, as it always does, here is an interview between German daily Spiegel and Paul Woolley, a one time fund manager, and currently head of the LSE's center for Capital Market Dysfunctionality (sometimes affectionately known as the Princeton Economics department) who explains why things are on the edge of a precipice. His message for anyone who thought that Irene may have been a risk: you ain't seen nothing yet. "The developments in recent weeks have made it quite clear that the markets don't function properly. Things are spinning out of control and are potentially dangerous for society. Only a fraternity of academic high priests connected to the finance markets is still speaking of efficient markets. Still each market participant is pursuing their own selfish interests. The market isn't reaching equilibrium -- it's falling into chaos."
From Der Spiegel:
Financial markets are inefficient and growing to the point of overwhelming the economy, according to Paul Woolley, an expert on market dysfunctionality. In an interview with SPIEGEL he explains why it's up to investors to stop dangerous trends and hold financial institutions accountable.
SPIEGEL: Mr. Woolley, you were fund manager for many years, but went on to found a research institute at the London School of Economics to study why financial markets repeatedly go haywire. Now speculators are once again betting against the euro, and share prices for big companies are falling by 20 percent in a day only to shoot back up again. What is going on?
Woolley: The developments in recent weeks have made it quite clear that the markets don't function properly. Things are spinning out of control and are potentially dangerous for society. Only a fraternity of academic high priests connected to the finance markets is still speaking of efficient markets. Still each market participant is pursuing their own selfish interests. The market isn't reaching equilibrium -- it's falling into chaos.
SPIEGEL: You've compared the finance markets to a cancer. What do you mean by that?
Woolley: The finance sector can -- and is -- growing until it overwhelms the economy. In good years the US finance industry cashes in on more than 40 percent of all corporate profits. In bad years they are saved by the taxpayers. The agents are doing a devilishly good job of developing innovative, complicated new products that people can't understand. It gives them the opportunity to earn excess returns and attract the best talent. While they are acting rationally, the result is a catastrophe.
SPIEGEL: For someone who took part in this activity himself, that is a harsh judgement.
Woolley: I suppose as an investment manager for a large fund manager I was quite successful. But I also spent much of my career taking advantage of investors' herd instinct. Most fund managers follow only the newest trends and strengthen them by doing so. In the short term that leads to success, but in the long term it leads to a crash. This connection occurred to me when we pulled out of technology stocks in the late 1990s and investors with us withdrew money. After the new economy bubble broke in 2000 they came back to us because we were better than the rest of the market.
SPIEGEL: Why did you leave the finance industry in 2006, then?
Woolley: I wanted to do something socially useful. We want to revolutionize the finance industry with our institute. You have to build into the models and the self interests of the banks and fund managers to which the most investors have delegated their investment decisions. The finance industry is characterized by many innovations. Because the customers hardly understand their innovative products, banks make amazing returns. But simultaneously there is a moral hazard: When something goes wrong the bankers just move on to the next employer. The banks bear the losses. Or, in the case of bankruptcy, the state takes on the costs.
SPIEGEL: Governments are trying to curb the financial industry. What are their chances?
Woolley: I'm skeptical about this. There are many incentives for banks to get around the rules. Sanctions won't help in the long run.
SPIEGEL: You rely on the insight of the investors, then?
Woolley: Right. The big investors are in a position to force their service providers, the banks, fund managers and bankers into better behaviour. I have developed 10 simple rules that big investors should introduce for their own interests. After all, average returns on pension funds worldwide, for example, have decreased repeatedly after the market crashes in recent years.
SPIEGEL: What should investors take to heart from these 10 rules?
Woolley: They should stop chasing short-term price changes, and instead take a long-range approach to investing. That's why they should cap annual turnover of portfolios at 30 percent per annum. They should stop paying performance fees to managers who increase the worth of funds because it encourages gambling. It is nearly impossible to assess whether above average returns come from a manager's skill, luck or market moves.
SPIEGEL: What can insurers and other large investors do additionally to contain the excesses of the financial markets?
Woolley: They shouldn't invest in hedge funds or private equity companies. Managers at these companies are particularly good at hiding high costs to enrich themselves. To generate returns they must take on significantly higher risks. Big investors should also insist that trading take place on a public market. Bank profits would sink almost automatically if they were no longer allowed to sell opaque products.
Interview conducted by Christoph Pauly
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Yeah, yeah, yeah.
I guess the point is that free markets should now be banned? Or better yet, controlled?
LOL
free markets should now be banned?
You cannot ban that which never existed. I am all for free markets, but show me a free market PLEASE.
Bitcoin?
He said free market. Not Open Source ponzi.
i love this market. we're all going to get to watch warren buffett lose a big chunk of shirt off his back. of course it's not enough to hurt the oligarch. but it's enough to hurt his pride. bath tub boy!
http://azizonomics.com/2011/08/26/warren-buffett-credit-anstalt/
Somehow I do not think The Warren will suffer in any way. He is a TBTF, a member of the elite and a BIG fundraiser for Obama. Instead, I think ol' Warren just made a great play that we little investors cannot.
The rich get richer...
"Somehow I do not think Joseph Goebbels will suffer in any way. He is a Nazi Officer and one of Hitler's ministers and the Reich will reign for a thousand years."
The evil will continue their evil...
Well put Tuco. Maybe there will be a justice of sorts.
Or a justice of shorts...
Greenspan: "I have found a flaw."
Hitler was not part of the global financial elite. That is why he lost. Who will defeat the international bankers?
You are definitely onto something here. All the capital extraction that could be done had been done so the thing had to be finished. When the looting got down to extracting the gold from teeth you could pretty much bet that the bottom had been scraped. Time to move on to the cash cow of rebuilding all that had been destroyed so that the next war could be planned.
sun tzu
So true, but Hitlers financial chief clearly understood the printing and borrowing game. When that was not enough to keep the Nazi Ponzi going then theft, plunder, wars and murder followed.
I've long suspected that he was very much a tool of the elite but that he was never meant to succeed...
,,,maybe little suffering for now, but in the long run they are doomed. There is no honor among thieves and they will turn on each other.
All the Crony Capitalists have broken the law Big Time. A Special Prosecutor would slice and dice Uncle Warren, baby.
Buffet won't lose a dime. That $5 billion is backstopped by US citizens. You think he would amke that bet without a gurantee from Uncle Sam?
A "bath tub boy" nonetheless.
is that like Tub Girl?
Open source ponzi... interesting I hadn't thought of it that way.
My understanding is to get coins you either 1) Buy them on "the market" or 2) Mine them by running a program on your computer.
Mining, in this case, is the digital labor required to attain new coins. Buying them is just like any other commodity.
Where does the ponzi come in?
virtual money is worthless outside of its eco-system unless it can be exchanged for REAL money.
A ponzi scheme makes money for the people already in it, by taking money from new people joining, and paying those already in it (until it saturates, and not enough new people can join and it collapses, leaving the earliest adopters on top, and the last with nothing).
The money paid out for bitcoins ultimately comes from the new people joining the party
Most ponzi schemes are proprietary :), as in those who started it, are the original adopters and the ones who profit the most. Open source, means developed by the users. In this case, the motivation to perpetuate resides in everyone sharing in the ponzi'ing :)
So, Open Source Ponzi is pretty clever.
It might be more accurate to call it a "Distributed Ponzi Scheme", or "Peer-2-Peer Ponzi" ROFL
Please define 'real money'.
a store of value that be exchanged for a good or service
you appear (but i wont assume), to be looking to make some comment that USD isnt real money. Dont confuse money backed by something, versus fiat, and the meaning of the word REAL. The USD is REAL money, it gets used every day as money, its VALUE is being depreciated, but as long as people keep agreeing to ascribe SOME value (albeit a shrinking one), it is still REAL money.
What makes the USD real? The fact that people use it to exchange it for goods and services, and other forms of money, i.e. EUR, GBP, AU, etc.
What makes BTC real? The fact that people use it to exchange for goods and services, and other forms of money.
The point I'm aiming at is that money is what we make of it.
well you failed lol. Bitcoins only exist in their own system, and can be brought back to the real world, by exchanging them for real money. As i explained to you...
Read my original post, and my answers again, then go sell your bitcoins.
I read your original post. Several times.
I'd love to hear a solid argument against bitcoin that can hold water.
I'll continue experimenting with them. I find it worth studying.
If nothing else, at least the geeks are trying.
my arguments are as strong as the laws of physics, and you are bahgdad bob claiming there are no americans in iraq, with an M1 Abrahams pointing its gun at you in the background.
LOL
http://politicalhumor.about.com/library/jokes/bljoke-iraqinfominister.htm
Why not just empower the government to print its own non-backed fiat currency and allow freegold and freesilver to emerge. Peopel will use fiat money for transactions and PM's for storage of wealth. Problem is, any politician that tries this gets assassinated. Isn't that why JFK was shot? He tried to bring in a government issued $100 bill?
There we have it. Eilsey cannot come up with a good counter argument, so he/he must resort to ad-hominem. Shame too, I'd really like to hear something better than "you're baghdad bob". Thanks for playing.
As to why John and Bobby Kennedy were shot, I'd say the evidence is purposefully unclear. But it sure is convineant that they had wanted to reverse the real corruption in the mob, unions, and FED.
my arguments stand on their own, you arent countering them, or even addressing them. You just then CLAIM you are right still without any evidence, rebuttal or proof
Hence, you are like the former iraqi information minister. You try to invent the truth just by repeating it, when its obvious you are wrong.
So keep telling yourself "there are no americans in bahgdad" LOL
All I've seen is a bunch of ambiguous arguments which can be applied to BTC or USD equally with the exception of a paper (physical form) and a military backing. I'm not claiming anything about BTC. I have seen many arguments towards BTC, so I am truly trying to find solid arguments against BTC. I honestly don't see BTC going too far, but not for the reasons you've stated.
Don't confuse someone genuinely seeking counter arguments as an evangelist.
"Mine them by running a program on your computer."
does this program do anything useful and/or productive to justify consuming the energy to run it?
It sure does. "Mining" is a misnomer term used to describe the cryptographic processes required to create new coins and proccess transactions. When you are a "miner" your benefit to the BTC community is that you are helping to ensure the security of BTC itself as well as processing the transactions which occur.
Bitcoin does have a lot of enemies. I imagine the paid .gov trolls on zerohedge have it on their hit list. You've got to be doing something right when you have that many enemies.
your enemy are the MI6 and CIA agents who run WikiLeaks and LulzSec, and dope n00bs into joining to take the fall as patsy, and who made you think bitcoins are cool, and those leakers/hackers are really sticking it the MAN, man.
Take the Red Pill, foo
I had no idea that Bitcoin used the "Social Security" business model!?
Free markets are unicorns; they exist only in our minds, just like one handed claps, dry watrfalls, and sustainable economic growth. Anytime you get anything resembling true unregulated "freedom" in a market, the first big bully to come along will take advantage of its "freeness" and soon turn it into a rigged market for its own advantage. The benefits of "free" markets must be carefully regulated or you will quickly lose them. A better term is "fair market". Free markets are not fair and fair markets are not free.
+1
Obam and Bill Ayres with Piven/Clovard talked about how they would wreck economies and countries. Make banks lend money to people who have no hope of paying it back, pass laws that punish them and make productive people pay for it.
Unfortunately for them George Bush beat them to it by eight years. In fact he may have been the first President in history to get Wall Street to agree that destroying itself was in its best interests. Statements like the above only serve to enrage "the beast"--and look! THEY'RE WILDING! Heaven's to Betsy! What will the government do to save us! OH NO! They're gonna make it WORSE!
0bama is Bush on steroids. To make it worse, the media turns a blind eye to everything he does.
Concur, but I do miss the W stupid talk, ... Obama is a snake in the grass...
Bitcoin was just robbed. Way too easy to be hacked and looted. Bitcoin is like a foolish tourist in Paris, he will be pickpocketed in no time flat.
Ask some Bitcoin owners how it feels to be looted.
Very profitable ponzi if you got in early and got out before the SHTF, though.
http://bitcoincharts.com/charts/
And as we all know, U.S. Dollars have never been stolen. Much less gold. I regard the fact that someone is willing to risk prison to gain something as a fair proof of its value.
I also heard people having their accounts hacked in virtual economies within online games. I'm sure it sucks, but that's reality? Fantasy coins backed by the full faith and credit of fantasists and electricity! Dig a fake ditch and fill it back in! Have we hit peak insanity yet?
Anyone who thinks Bitcoins are cool, or not a ponzi, are
1.) 25 or younger
2.) In debt
3.) own no Gold, but have some old nickels and dimes with silver in them
4.) has been to collegehumor.com in the last 3 weeks
Shoe fit bitchez?
Nope. Nope. Own plenty. Nope.
you mad cinderella? :D
Not at all. But wouldn't it help your credibility a bit to understand the types of people you're "describing" before you lay blanket statements which you are easily incorrect about?
I am one. I was looted when Gox got hacked. I learned my lesson. Do I need a central authority to rape me or can I take my chances on my own?
Aren't we being robbed by the FED/Govt?
Weren't people robbed in stores as long as they have existed?
Weren't trains robbed during the western expansion?
Does the existence of robbery doom a money?
Many of the above comments demonstrate muddy thinking. I don't have a dog in the BitCoin fight but I'm FOR anything that can store any form of wealth that TPTB can't get their grubby hands on, tax, or sell derivatives of. Talk about Ponzis!
bitcoins only have value when expressed in dollars 8|, so how is that not something the government can get its hands on, tax, or sell derivatives of.........
if every person on the planet all died instantly right now, how much is gold worth, or a USD, or a bitcoin, or anything? Exactly 0. Value is the real measure we are talking about, and money is simply a store of it, that allows people to not have to use a barter system for commerce.
Gold isnt WORTH anything, unless people perscribe a value to it. Why it became the universal store of value for all of human history lies in the fact that it is, Rare, Equally Divisible(the same no matter how you divide it), Non-Oxidizing(doesnt degrade), and you could even say visually desirable(historically).
So in theory, Bitcoins could become real money, but the problem is, they aren't real (virtual), can only be exchanged for other existing stores of values to be used in the real world(aka US Dollars), not widely desirable(except by those who have been bamboozled into thinking they can get money for nothing), have artifical rarity (rarity is made up by the creators).
Whether its pigeons, or virtual coins, the sure sign of a Ponzi is money for nothing, and the need for other people to bring value from outside the system to create worth. The USD is raped through inflation and money printing, but it operates within the system that ascribes its value, not outside it.
and now you know
So in theory, Bitcoins could become real money, but the problem is, they aren't real (virtual), can only be exchanged for other existing stores of values to be used in the real world(aka US Dollars), not widely desirable(except by those who have been bamboozled into thinking they can get money for nothing), have artifical rarity (rarity is made up by the creators).
In what way do people think they can get money for nothing? What differences do you see between any of these ways and current methods being used to exploit the USD?
During the gold rush into the west, there was rather high inflation caused by entirely natural economic phenomena. The same applies to Spain during their conquests in central and south america. Many people 'made money'. Some got extremely rich.
If you want BTC, you have to either trade your dollars, services, or property for it. Alternatively, you can rob someone, a bank/exchange, or some other entity, just like on the street today.
I already explained all your questions in detail, and you included part of it in your quote of me.
"In what way do people think they can get money for nothing?"
The running your computer churning random numbers is the money for nothing aspect
"What differences do you see between any of these ways and current methods being used to exploit the USD?"
Bitcoins only have value in the world, by bring them out of their virtual eco-system and exchanging them for a real currency. The money that is given for taking them out comes from other people joining in, the definition of ponzi.
FIAT CURRENCY NOT BACKED BY SOMETHING DOESNT MEAN IT ISNT A STORE OF VALUE. IT JUST MEANS ITS EASIER TO MANIPULATE AND DEPRECIATE THE VALUE.
"During the gold rush into the west, there was rather high inflation caused by entirely natural economic phenomena. The same applies to Spain during their conquests in central and south america. Many people 'made money'. Some got extremely rich."
I already explain this to you:
Gold isnt WORTH anything, unless people perscribe a value to it. Why it became the universal store of value for all of human history lies in the fact that it is, Rare, Equally Divisible(the same no matter how you divide it), Non-Oxidizing(doesnt degrade), and you could even say visually desirable(historically).
So in theory, Bitcoins could become real money, but the problem is, they aren't real (virtual), can only be exchanged for other existing stores of values to be used in the real world(aka US Dollars), not widely desirable(except by those who have been bamboozled into thinking they can get money for nothing), have artifical rarity (rarity is made up by the creators).
If you want BTC, you have to either trade your dollars, services, or property for it. Alternatively, you can rob someone, a bank/exchange, or some other entity, just like on the street today.
People within the eco-system attempt to extend the eco-system, by bartering BitCoins to other people in the system, and say "look, its real". But it's not. cause the only reason people will give you anything other than dollars for a bit coin, is because they are planning to LATER exchange their bit coins for dollars. And no matter what, the dollars they get, when they exchange their bit coins COME FROM NEW PEOPLE BECAUSE ITS A PONZI SCHEME...
People in the gold rush werent trying to dig up Gold because they thought it was going to go up in value, its because it already had value, as the universally excepted store of value, and it was rare because its not being created....LOL
Get a clue, stop making me repeat myself, and make a point....
Your first point is incorrect. Those miners are performing a service. They are ensuring the cryptographic security of the system and they are processing transactions. Their work is not free. It takes electricity and hardware to perform this service. If you want to trade stocks on NASDAQ, you will be paying them for essentially the same thing.
Your second point relates inversely to the dollar. All you have described is the core property of a deflationary currency. Likewise, if I bought gold in 1998, I'd be in a ponzi because it's worth more now? No way man.
I agree with your third point, apart from the ponzi aspect. Also, desirability is an effect of the range and acceptance of the currency. When I first went to Sharm El Sheikh in 1998, I could use dollars to buy anything. I was there again in 2006 and I couldn't buy jack shit with the USD, does this make the dollar a bogus currency?
Your fourth point again attributes ponzi to deflationary currency. These are distinctly different. I can say the same thing about gold or any other "asset" believed to appreciate in value. It probably sounds good in your head, but it doesn't stand the smell test.
While I'll agree that Bitcoin is a Ponzi and that it (as with any currency) can be stolen, I'll say this:
The value of BTC lies it its logarithmic rate of growth.
See chart here.
The problem with the USD and most western fiat currencies is that the central banksters can print it at will, making the money supply go parabolic (and gold along with it.) Bitcoin on the other hand hits that nice horizontal asymtope around 2025 and therein lies its value.
Could you imagine the strength of (Insert X currency here) if you could say with certainty, this is exactly how many units will be in circulation in 20 years, 10 years or even next month?
It must seem counter intuitive to most zero hedgers that something digital could hold it's value better than 'real' things. Bitcoins can be stolen in the same way crackers can get into a website and steal your credit card number. This doesn;t change the structural strength of a peer-to-peer currency that grows at a predetermined rate.
I think after the collapse that bitcoins will serve as a nice model for how a central bank should function.
controlling supply of money is a virtuous thing, but is not the sole necessary ingredient for a good currency. Read my comparison of gold to bit coins above for example.
Also look at the Civil War era Greenback, not based on a Gold standard, true fiat, and fantastic. Fiat works fine if the supply is controlled. Its the unaccountable Fed controlling the currency supply that creates the supply problem, not the fact that its fiat.
Gold backed money can be manipulate quite well, through manipulation of the Gold supply itself. Look up the history on it.
While having a declining production of bitcoins is beneficial to their model, look at the early adopters advantage. Its still a ponzi scheme, just a well planned one, designed to last as long as possible, with plenty of smart sounding but flawed arguments to convince people who want Gold backed money, that this is some how related, and computers churning numbers is like mining gold lol.
The supply of BTC is strictly controlled in a fixed and publicly known manner. It's quite similar to how the greenback was managed, however, it does not require a responsible government.
Oh how I feel for you cry babies.
You will have to go back a bit. Just watch Raquel Welch in 10,000 years BC.
Was that a furry bikini or were cave women exceptionally hirsute?
Raquel is yummy. Love those furry suits. I'd kick that caveman and his cave dad's ass for a piece of Raquel under age 30. Yep.. Love that Bolivian thing...
lana
Ahh, Bach!
Um, I think the point he was making was that fraud markets and not "free markets" should be banned and that it's investors moral obligation to see to this.
Agreed, and since there is no justice in DoJ, SEC, CFTC et. al., duelling should be reinstated for satisfaction of insult and injury.
You're absolutely right. When these fucks are in the business they fight against regations. Then they make millions, set themselves up for life.... and NOW they want regulations. They seem to think it will make up for whatever fucked up thing they did coming up. They're willing to hand our economy over to central planning just to make themselves feel better.
What a fucking asshat!
Right but how many people have become involved with something first only to find out it isn't what they thought? Or just had a change of heart? Think of Andrew Maguire or John Perkins.
....better yet, think of 9 out of 10 husbands worldwide.
"Or" 10 out of 10 women!:)
1 out of 10 husbands don't give a shit.
http://mutualist.blogspot.com/
Mutualist Blog: Free Market Anti-Capitalism
http://www.mutualist.org/
Mutualist.Org: Free Market Anti-Capitalism
http://en.wikipedia.org/wiki/Kevin_Carson
Kevin Carson
http://www.mutualist.org/id4.html
THE IRON FIST BEHIND THE INVISIBLE HAND
Corporate Capitalism As a State-Guaranteed System of Privilege
by Kevin A. Carson
http://c4ss.org/
Center for a Stateless Society
building awareness of the market anarchist alternative
Food for thought. Unfortunately they pick a Saturday.
https://occupywallst.org/
http://www.adbusters.org/campaigns/occupywallstreet
http://www.facebook.com/event.php?eid=144937025580428
Is America Ripe for a Tahrir Moment?
All we need is anarchists and communists building Obamavilles in downtown Manhattan. Where is Cat 4 when you need it
Derpa-derp-derp
WTF there was a post here at the pole position a second ago with ROBO talking up gold miners? and now it's gone
I saw that too.
Selective censoring? Or just buggy software?
(And he made a very good point.)
I know if Robo (widely hated but liked by some) has a perspecitve on why the miners aren't following the metal I would be interested to it.
Perhaps Robo has gone the way of Leo.
He was basically saying that the miners are looking strong, and that, in turn, would help to propel the broader market higher.
Chart Ramblings has also picked up on the miners' strength.
http://chartramblings.blogspot.com/2011/08/fres_28.html
http://chartramblings.blogspot.com/2011/08/hmy.html
http://chartramblings.blogspot.com/2011/08/newmont.html
No miners on the DOW and very few in the S&P
perhaps robo and leo are 69 somewhere?
No they are 68 somewhere. I owe you one.
"transitory"
if I were a betting person I would say that was Robo's final post here at ZH and to think it's been lost for eternity
gone, not with a bang but a wimper
dbase issues. Everyone enjoys the humor that Robo imparts
Don't tell me you're using mysql instead of postgresql? All to save a lousy buck?
A couple of donations of an ounce or two should cover the difference.
Everyone. Absolutes can be a killer! I like his humor as well. When does he start doing stand-up?
that happened to me the other day......i was first or second...when i went back i was way, way down and not by people commenting in between.....if this site ever started acting that way it would die immediately