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My development logbook

Dysfunctional Market?

In an ABC’s podcast, Dr Paul Woolley gave an speech on Financial Sector Dysfunctionality. Indeed, witnessing series of financial stuff-up’s in last centuries, one bigger than the other, shouldn’t we slow down and take a good look at this interesting business sector?

Paul used his personal experience in the adoption of momentum trading to illustrate some recent worrying changes in the financial market. I don’t think I can paraphrase very well, so please read full transcript here.

These days, financial sector is growing faster and larger, and taking increasing bigger share in GDP. It is, however, not entirely a result of the sector doing a better job as an intermediary between investor and borrower. Instead, especially after the rise of hedge funds, more and more financial operations are making profit from market volatility or other speculative behaviors. The money changed hand in the process has far exceeded the actual value of the annual global output. Does it make sense at all?

We can always reduce the phenomena to human greed and fear. In the other word, a financial market is for speculators to speculate, just like what Las Vegas is for gamblers.

But, could it be something more? If we know it is wrong and yet we fail for it decades after decades, could it be something more hideous that’s lurking in our collective psychology?

Could it be similar to the construction of the Pyramids in Ancient Egypt? When a society make a collective economic choice and believe that a certain non-productive, expensive activities, conducted by a handful of elites, should be handsomely rewarded by the general public at large, is it a social/organizational problem?

For argument sake, let’s assume it is. Then what purpose it serves? Could it be just a natural device to stabilize human population (e.g. to creating a underclass who either died of starvation or illness), or an essential mechanism to hold a society together (akin to a common religious experience)?

Actually the religious analogy can be further developed.

  • The various indexes are like the Oracle. It may or may not tell the future direction of the economy.
  • The big financial houses are like Temples. High priests are there to talk to the Gods.
  • Their royal servants, me included, dutifully takes up the responsibility of all daily housekeeping activities and, most important of all, money collection. We highlight the blessing one will receive if they sacrifice all their income to our product, and unconceivable suffering if they do not put away their for investment.
  • Occasionally we have good news to the people: “Rejoice, the Oracle of Gods hath spoken. A new era has come. Sell all your belonging and buy the stocks of these websites!”
Well, I think you have got the idea.

But seriously this topic deserves a more systematic, in-depth treatment.