Time Explains Financial Markets

How Financial Madness Overtook Wall Street - TIME

In general I think this is a pretty good article. I'll summarize and add my spin:

• Markets, like any somewhat natural phenomenon have cycles
• We all want to "control / regulate / moderate" the markets to some extent. Like natural phenomenon (flooding, disease, storms, etc) this is sometimes possible to SOME extent, but at the absolute, out of our control.
  
• Since markets are human created, the psychology of humans has a lot to do with their movements. Greed and fear are two operative feelings that drive fluctuations.
  
• We layer "technology" until nobody completely understands what we built. Financial technology is the same -- we aggregate, derive, hedge, etc until it SEEMS that we have a way to "control the risk", and even "gain from the risk". For some durations of time, maybe we do--but again, the induction problem. We will never KNOW that. Tomorrow ALWAYS has the potential to be "completely new", in both good and bad ways. We doubt that it WILL be--in either the good or bad ways, but it certainly can surprise any of us.
  
• People overreact--in all directions. Too high, too low, too much, too little, too fast, too slow, etc. It is part of human nature. In government, in business, in families--it goes with the flawed nature of humanity.
  

So, where does that all leave us. Bottom line, we don't know, but PROBABLYThe "crisis" isn't as big as the MSM would like us to believe.  We better HOPE that McCain and Bush are right when they say that the economy is "fundamentally sound". It is hard to see how they would NOT be right given the standard of living, corporate profits, etc, but since a lot of it can come down to psychology, it may be that enough of the public has been scared enough by some of the mis-reporting that we may yet get a huge general crash that will be to nobody's benefit.

My favorite piece of that mis-reporting is the CONSTANT statement (repeated in this article) that the Freddy/Fanny bailout is $6 TRILLION. That would be if ALL the mortgages in the US defaulted. How likely do you think THAT is??? The CBO said it was likely a $25 BILLION exposure. That is a LONG way from $6 TRILLION. Do these folks have a death wish? It IS possible to get large masses of people to do really stupid things -- HG Wells War of World radio broadcast if you aren't a believer.