Richard Green is a professor in the Sol Price School of Public Policy and the Marshall School of Business at the University of Southern California.
This blog will feature commentary on the current state of housing, commercial real estate, mortgage finance, and urban development around the world. It may also at times have ruminations about graduate business education.
Tuesday, April 19, 2011
Why does S&P matter?
Are they telling us anything about the US fiscal condition that the whole world doesn't know? Is there anything to suggest that their past insights have been particularly penetrating? Just wondering...
Unfortunately markets are not entirely rational - for if they were S&P statements would already be known (they pretty much always say something obvious) and this would have been figured intgo prices. However, in the last couple of days we see the DJIA drop in response to the S&P statement and then bounce right back the following day. The mentality of crowds is what it's all about.
The financial sector is saying: "What do you mean, you picked us up out of the gutter we fell into when we were drunk? No such thing happened! We believe that you are drunk and at risk of falling into the gutter if you stand in Our path! Now sober up and get out of Our way, or there's a one-in-three chance We'll kick your ass sometime in the next two years! And, no, don't go to help those plebeian beggars lying behind Us! They were in Our path, too, and deserved to have Us push them down!"
Unfortunately markets are not entirely rational - for if they were S&P statements would already be known (they pretty much always say something obvious) and this would have been figured intgo prices. However, in the last couple of days we see the DJIA drop in response to the S&P statement and then bounce right back the following day. The mentality of crowds is what it's all about.
ReplyDeleteThe financial sector is saying: "What do you mean, you picked us up out of the gutter we fell into when we were drunk? No such thing happened! We believe that you are drunk and at risk of falling into the gutter if you stand in Our path! Now sober up and get out of Our way, or there's a one-in-three chance We'll kick your ass sometime in the next two years! And, no, don't go to help those plebeian beggars lying behind Us! They were in Our path, too, and deserved to have Us push them down!"
ReplyDelete