Comments on: Failing to regulate the buy side A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: chernevik Mon, 03 May 2010 21:38:26 +0000 Hard to imagine an asset bubble without buyers.

By: HBC Mon, 03 May 2010 15:29:14 +0000 The lobbying has worked to the extent that the system doesn’t appear to need to.

Wall Street is like a state within a state, except it has no separation of powers. As long as there are no external controls, the health of the system continually deteriorates for lack of internal logic, ethical guidelines or accountability.

What we’re seeing now are the results of attempts to self-medicate. And they’re not good.

By: RichardR1 Mon, 03 May 2010 15:03:50 +0000 Regulating buyers is going to take some penetrating work by some mighty sharp cookies.

Characterizing the buyers of Abacus as little old ladies is no more ingenuous than saying (as Goldman does) that these are sophisticated institutional investors who know what they are doing.

The problem, of course, is that the buyers are not buying with their own money so their incentives are skewed by the same herd behavior as other institutional money managers.

I suspect that the economic theory that informs policy making assumes that buying and selling decisions are made by the owners of the money who are seeking personal benefit. That doesn’t sound like the current world.

Maybe there is an economics based on an economy where decisions are made by agents and salesman, but I’m unaware of it (my economics study was a long time ago.) Doesn’t capitalist economics assume that owners of capital have an influence in the uses of that capital?

Salesman will always go for the sale. But securities buyers today are fund managers in investment companies, pension funds, banks, and other institutions that agglomerate the savings of outsiders. This is true of most hedge funds and private equity but here the incentives can be even more disconnected and opaque.

Free market purists live in a dream world of rational investment decisions. But other economists still fail to consider the effect on markets of decisions being made by those incentified by keeping their jobs and maximizing bonuses. Maybe there’s a Nobel out there for some visionary economist who can adapt capitalism to a world in which often owning capital carries little real influence.