If only it worked. Robin Hanson has a brilliant solution to stock market volatility:

Congress could give some well-regarded "best and brightest" regulators a big pile of cash, say $100 billion, and have them correct prices by trading, buying when they think prices should rise and selling when they think prices should fall. If regulators really do know how to choose good price pushes, then not only will they correct "biased" stock prices, they will increase their pile of cash, and we won't need to give them any more.

If, however, regulators lose their pile of cash, let them come back to Congress begging for more, explaining how they had it all wrong before, but now they know when to push prices up versus down. And after very some public hang-wringing, let Congress give them another $100 billion to work with. And if regulators come back a few years later asking for even more money, explaining how they had it all wrong again, but now they know how to do it right, let Congress given them another very public scolding, along with another $100 billion.

And if regulators lose that pile, maybe Congress and the public will have had enough, and will quit the price fixing business. Fool me once, shame on you; fool me thrice, shame on me. The $300 billion will have been well worth it to clearly show regulator inefficiency, especially since that money would just have been transferred to financial speculators, the people who really rationalize stock prices.

Sadly, though, I suspect that many still wouldn't get the clue.

It should have the handy effect of transferring $300 billion out of the hands of the government, giving them that much less to do damage with.

Oh wait--we'd get those $100 billion increments from the existing budget, not increased taxes, right? Right? Really, right?

who cares if the stock market is volatile?

...I suspect that many still wouldn't get the clue.

"...poverty and inequality continue to rise." - Hillary Clinton.

Some scams are eternal.

who cares if the stock market is volatile?

Posted by anonymous at March 5, 2007 04:59 PM

Once again a pithy, intellectual, educated statement from this troll.

anonymous, if you are really as dead set against our country, our laws and our money grubbing, why don't you leave? There are socialist countries all over the world where your idiot ideas, sorry, erudite ideas would be welcomed.

seriously who cares if the stock market is volatile,
so it loses 200 points in a day, let the program trading run it down
another 1000, that's just a buying opportunity for me.

why do you think markets should be steady?

Way to completely miss the point, Anonymous Moron. Once again you live up to your name.

Actually, Robin Hanson is also missing the point. Stock market regulation is almost never about "right" and "wrong" prices. Rather, it's about (a) gambling with other people's money, and (b) control of inside information.

You don't have to know anything about price movements to identify a broker who has a "heads I win, tails you lose" relationship with his customers. Or, in more dangerous cases, such a relationship with the government. You also don't have to know anything about prices to see the problem with company deal-makers who go running from board meetings to stay ahead of the curve with their own stock.

As it happens, both kinds of bad behavior certainly can contribute to market volatility.

The Bush Administration's solution? That third-party risk takers and insider traders can police themselves. Just ask them! Viva la free market, businessmen are our nation's heroes.

According to Bush doctrine, businessmen can also police themselves pretty well when it comes to taxes.

Honestly, I have always believed in capitalism. Just not in theories of self-policing.

Actually, Robin Hanson is also missing the point. Stock market regulation is almost never about "right" and "wrong" prices. Rather, it's about (a) gambling with other people's money, and (b) control of inside information.

In the article, he sites someone who sees the need for good regulators and regulations to enforce "rational" behavior on the markets.

As it happens, both kinds of bad behavior certainly can contribute to market volatility.

But we don't consider regulating brokers and company insiders because they affect market volatility. There are more fundamental reasons to regulate those parties.

The Bush Administration's solution? That third-party risk takers and insider traders can police themselves. Just ask them! Viva la free market, businessmen are our nation's heroes.

Well, when it comes to market volatility, the disease is the cure. Those who create excess market volatility or for that matter overly restrain market volatility will lose money.

In the article, he sites someone who sees the need for good regulators and regulations to enforce "rational" behavior on the markets.

I'll grant that it could be a case of wrong arguing against wrong.

But we don't consider regulating brokers and company insiders because they affect market volatility. There are more fundamental reasons to regulate those parties.

Sure, the powers that be may cite reasons that they consider more important, but volatility is expensive and it is related to these other reasons. The connection has been called "irrational exuberance".

Those who create excess market volatility or for that matter overly restrain market volatility will lose money.

No, not necessarily. Manipulative investors can sometimes create volatility that they exploit for profit. Or they can be smarter at momentum trading than the losers, in which case their positions could magnify volatility.

Many strategies with these features are or should be illegal. But some of them cannot be made illegal. For example, there is the Dean Kamen strategy. If you announce a possibly fantastic new invention, it can create a lot of volatility that might make you rich whether or not it pans out. Who can blame you just for being optimistic?

What is true is that there is a base of rational, restorative trading behavior. The government shouldn't tamper with it. Up to that point, Robin Hanson is correct. But his prescription is off the mark. Probably some regulators do invest money for profit, using the same insider trading methods that they are supposed to expose.

I thought Alan Greenspan had already tried this experiment in the late 90's?

Everyone trades on information that they think that everyone else has missed.

And, speaking of insider dealing, Gore's G**gle "investment" makes Hillary's cattle futures look like small change.

Why should "insider trading" be illegal, exactly?

The people with the best information spread that information by buying or selling.

(And no, "it's not fair because they know more" is not a compelling counter-argument.

Do we prevent the completely ignorant from investing? Why not? I mean, they're at a huge information disadvantage, and that's just as "unfair" [ie, not at all].)

See this article at Reason for more. ("When contemplating the justice of jailing people for insider trading, it helps to consider a certainly far more widespread practice: insider non-trading -- stock sales or purchases that would have been made, but aren't, because of "inside" knowledge.")

hanson sets up a straw man so he can knock it down.

Frankly i'm all in favor of volatile markets, I invest for the long term
so a big dump is just a buying oppportunity.

Simberg seems all unhappy because his neo-con buddy
is looking at jail

Why should "insider trading" be illegal, exactly?

Sure, why should the captain have to go down with his ship? It may look unfair if he takes the first rowboat, but that is what the slow-footed always say. He just knows more about seafaring than eveyrone else, that's how you get to be a ship captain. Besides, when the passengers see him rowing away, it means that he's sharing his information.