Further to my previous blog comments about short-term trading, with its effects on investment odds, and also financial meltdowns:
They usually have to do with pros, even governmental “experts” reacting to problems, usually in a panic mode.
I feel the 2008-2009 financial rescuers, who had come from the financial community, were attuned only to the short term, and thus could not see how caution, by avoiding panic, would overcome our financial problems. They never envisioned the danger of acting in haste.
One major example: The value of collateralized debt obligations, CDOs. or their derivatives, were “marked-to-market,” under so-called fair value accounting. The latter is part of the Generally Accepted Accounting Principles (GAAP) rule in place since the 1990s.
But that rule could easily have been suspended for the emergency. CDOs are not usual items that accountants measure in balance sheets.
As a result, bank and investment company net worth figures were daily devalued to so-called “toxic” levels. Those levels were actually a fiction, brought on by an illiquid market, where true fair value was impossible to determine. The rescuers were blinded by their own personal and business backgrounds.
That short-term psychology permeated the entire useless, extraordinarily expensive, bailout philosophy. ( See the Earl J. Weinreb NewsHole® comments.
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