WANTED: Financial Pros with Firm Will

The WSJ blog post, "Don't Be a Hero" discusses just how random things are right now.  The financial markets have essentially turned into prediction markets, reflecting peoples' intuitions about what might happen next and rendering absurd the concept of a valuation model.  It's almost as if we're in a volatility bubble. What does "we're providing liquidity to the markets" even mean now?

What can be done?

Instead of "don't be a hero," we need fund managers and traders to go long, to stop staring at the short-term catastrophe, and INVEST for two years from now (or longer).  After all, what does risk management mean when the real risk is everything goes to he!! in a handbag? So, instead, imagine coming out the other side, after everything melts into a puddle and needs to be reformed: what should the economy look like in 5-10 years?

(HINT: Many of you will already know what I'm going to say, but for those who don't, this is not conceptually difficult.  Productivity depends on having the pieces of the puzzle ready to go. Those pieces center around (1) trust -- which is built within relationships, which are themselves created through common purpose and shared activities, (2) knowledge, and (3) personal and environmental health. Find entities that build those components, and we'll be out of the deep dark hole much faster than if we continue to flail around.  And it's not farfetched or out in wacky-land: here's the World Bank blogging from Social Capital 08.)

Financial pros: The social expectations are that financial losses will be huge, and that there's no rhyme or reason or good plays in this market.  It's not a matter of being astoundingly clever or fast on your feet; in a way, you have carte blanche to do what you think best without any second-guessing.  Stop looking for short-term opportunity -- it's all roadkill, and you're behaving like crows. Move this in the right direction.

Comments

[Conches]

Well said. I particularly like this insight: "The financial markets have essentially turned into prediction markets, reflecting peoples' intuitions about what might happen next and rendering absurd the concept of a valuation model." Here is my take on it: http://conches.typepad.com/conches/2008/11/networks-relati.html