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In Bank Drama: Forced Behavior, Solvency Crises And ‘Zombie Mode’
Another week of manic moves across rates and financials said more about sentiment, psychology and compulsory trading and hedging, than it did about anything else.
In "We’re Scaring Ourselves Into Bank Runs Now," I talked about the interplay between 24-7 news coverage, social media and the realities of modern banking, while suggesting that self-feeding dynamics operate far more efficiently than they once did, which means the risk of overnight panics is commensurately higher.
It's important to
As I digest the last couple of posts I see a general conclusion that the market is full of irrationality and every key player knows and accepts that fact. That raises two points. First, irrationality, including the stupidity of those spooked by the silly media, is hard to see coming and difficult to deal with rationally. Don’t know how those who must deal with these quandaries ever do it right. Second, from many courses taken in the subject including and undergraduate degree and the doctoral core, what I still remember is the folly of economists who continue to cling to the assumption that economic all players are rational. Clearly, that assumption is (silly) and it has to be a major reason why economics just doesn’t have much success creating sensible policy.