Rethinking Markets

I suppose a long post that explains WTF is warranted (I’d point to Daniel’s post as a good one), but in the meantime, two other things are buzzing more to the front of my mind. The first is the batshit crazy assessment by Henry Paulson in his testimony today that:

We must now take further, decisive action to fundamentally and comprehensively address the root cause of this turmoil. And that root cause is the housing correction which has resulted in illiquid mortgage-related assets that are choking off the flow of credit which is so vitally important to our economy. We must address this underlying problem, and restore confidence in our financial markets and financial institutions so they can perform their mission of supporting future prosperity and growth.

We have proposed a program to remove troubled assets from the system. This troubled asset relief program has to be properly designed for immediate implementation and be sufficiently large to have maximum impact and restore market confidence…

It’s like he believes that the financial system ate some bad fish. The problem is not with the patient, but with the fish.

Might I suggest that if the problem is that we need a way to distribute resources to people and organizations that need those resources, then the solution should actually be directed towards that problem. Not towards the problem of reviving our current system for doing so. The problem is systemic. Our financial system is a patient that self-generates systemic illness, not one that occasionally eats bad fish.

It reminds me of when the electricity grid crashes and we have these crises over how to fix it, make it more robust. But maybe there could be alternatives to a national electricity grid? The hub-and-spoke airline system doesn’t work. Fix it! Better air traffic controls! More efficient pricing! What about alternatives?

The other thing is that I’ve been teaching commensuration and the history of the futures markets in the wheat trade. I kinda wanna come back to that.