The specific points at issue are ownership or sponsorship of hedge funds and private equity funds, and proprietary trading — that is, placing bank capital at risk in the search of speculative profit rather than in response to customer needs. Those activities are actively engaged in by only a handful of American mega-commercial banks, perhaps four or five. Only 25 or 30 may be significant internationally.
“-A loose monetary policy that created lots of cheap money, government interventions into the housing market, and the hubris of Wall Street firms deemed ‘-too big to fail’- combined to send the world economy into a tailspin, argues Swedish author Johan Norberg.”-
“-Financial Fiasco: How America’-s Infatuation with Homeownership and Easy Money Created the Economic Crisis, an overview of what caused the current financial crisis (and what did not) and how politicians of all parties and all ideologies helped make the problem much worse.”-
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John Delaney states rightfully that the prediction markets are a mechanism that aggregates information dispersed among the population. Then, he goes on at full throttle and states that prediction markets can help “-avoiding future [financial] crisis.”-
Jesus, Mary, Joseph, that’-s quite an extraordinary statement.
John Delaney writes that crucial information is buried deep in the accounting books. That’-s true, but that’-s up to the financial analysts to decipher this problematic —-our event derivative traders can then just pick up on what those experts conclude. The financial experts were unable to prevent the current financial cataclysm. Adding more event derivative traders and more prediction markets won’-t solve any problem.
Prediction markets are only a reflection of the current knowledge of the best experts in town. At best, they are the best umpire you can get between, on one hand, the mass media or the politicians and, on the other hand, the best experts. But when nobody knows anything (or when nobody listens to Nouriel Roubini), the prediction markets are of no help.
What the prediction market industry needs right now is not an ill-informed, bragging rant.
What the prediction market industry needs is a way to discriminate between accuracy and utility.
What we need is more of Robin Hanson.
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UPDATE:
Feed readers: Download this post to be able to watch this CBS 60 minutes video on the credit crisis.
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