The Power of Traders
Ben Stein, the conservative writer, commentator, speechwriter, and actor, writes this week in the New York Times of Trader Realism – the extraordinary power that traders have to determine the fate of the economy. The traders don’t use data to drive their investments: they cherry-pick facts, spread rumors, and encourage misperceptions in order to make as much money as possible.
They have seized upon a fairly bad situation: a stunning number of defaults and foreclosures in the subprime arena, although just a small part of the total financial picture of the United States. They have then tried — with the collaboration of their advance guards in the press — to make it seem like a total catastrophe so they could make money on their short sales. They sense an opportunity to trick other traders and poor retail slobs like you and me, and they generate data and rumor to support their positions, and to make money.
Stein's limited interpretation of the problem ("fairly bad," "small part of the total financial picture") undervalues the real consequences the subprime crisis has had on families. But he still identifies an important pathology undergirding Trader Realism:
I know this because I know traders. They’ve told me that they love to sell into fear because fear is bottomless — you can make money selling all day, while buying eventually slows because enthusiasm has limits.
There it is. Traders preferring catastrophe to growth, fear to hope, pessimism to optimism. And what is lost to them, in their competition for earnings and promotions, is the prosperity and security of the entire nation.
Interesting insight...and from Stein, no less. Adam Smith was no fan of money manipulators. Traders are like pirates who raid the ill-defended coastlines and barges of crony capitalism, which is America's true economic model.
January 29, 2008 8:56 AM | Reply | Permalink