Wherein Finance Arbs Out the Better Angels of Our Nature

Most people who live or work in an urban center have had the disheartening experience of trying to help out a homeless person only to find track marks up their arm when reaching for your dollar. The fact that the money will likely end up in the hands of a local heroin impresario instead of food is one thing, but at this point we are used to being lied to. I submit that the real discomfort comes from the erasure of what we believed was a humanitarian gesture, that an impulse we were secretly proud of has been used against us. In deciding not to help out the next homeless person, our attempted affiliation with the Good Samaritan has been “arbed out”.

At its Utopian best, capital markets are designed to attract savings towards worthwhile investment to the benefit of the economy as a whole (stop laughing, I’ll get real in a second). In this perfect Platonic world, a small number of traders would step in on the occasions where short term sentiment pushed assets to levels well above or below some concept of longer-term Buffett-y value. This is not, however, the world we live in for rational reasons too numerous to recount. HFT combined with the widespread successful use of technical analysis has created an environment where traders and automated scalpers, measured by daily volume, outnumber long term investors by a significant margin. The resulting increase in volatility has “arbed out” a good part of the impulse to invest for the long term, particularly among retail investors.

I swore I would not allow the word Facebook on this blog, but in abandoning that pledge I promise in turm to keep this section short. The NASDAQ’s technical problems and the potential for improper dissemination of information aside, FB’s IPO went largely to type in the sense that MS priced the deal at the highest point the market would stand. This is their fiduciary duty and the fact that the Supply/Demand curves met at $38, if only temporarily, implies that the price was fair according to classical economics. Because FB’s fundamentals do not support the price, however, means that lottery-induced dreaming and ignorance among retail investors went a long way to getting the deal off. Retail optimism, in this sense, has been partially arbed out.

In the efforts to keep things concise, I wont extend this thought into the broader economy beyond noting that Madison Avenue are the uncontested kings of leveraging or arbing any consistent psychological trait, good or bad, into changes in consumer behavior. To date, admittedly, there is not a lot of revulsion beyond grumbling at the constant Orwellian barrage but at some point some kind of Laffer Curve Peak Advertising will be reached. Despite recent positive comments on advertising from Conor Friedersdorf, my belief that advertising in a capitalist society performs the same function as Soviet propaganda – the sanctioned, unconsciously-accepted-through-mind-numbing-repetition lies that keep the wheels turning – remains pretty much unshakeable.

I’m not at the “End of the World” sandwich board stage yet, but do think we’re playing a dangerous game if this trend keeps up longer term. The pervasive testing of the boundaries of our collective gullibility-politically, socially and economically – feels cumulative, a heavier weight over time if collective cynicism (coughJonStewartcough) is any yardstick. The money pouring out of equity funds could definitely represent an ongoing indicator that mom and pop have had enough of playing Charlie Brown with the investment banks holding the football. The Facebook deal’s certainly not going to help – the next time a broker calls a client with a once in a lifetime IPO opportunity, the client’s likely going to remember the junkie’s track marks.

7 thoughts on “Wherein Finance Arbs Out the Better Angels of Our Nature

  1. [...] Wall Street is playing a dangerous game by burning its individual investor clients.  (Interloper) [...]

  2. kris says:

    I am abrasive by nature and I nurture my abrasiveness. I love debating and I hate censure since there is no other way to learn.
    The problem I have with this article is that I have nothing to debate about and it drives me nuts.
    Every activity is always measured by its efficiency: Minimum amount of energy for the maximum amount of output.
    This writer is using the minimum amount of words for the maximum amount of simplicity.
    Mandatory reading….

  3. ToNYC says:

    If it doesn’t FEEL right don’t do it. Trying to make rational sense for humans in a corporate delivery system is the serf’s game…It is certainly not winning!

  4. Kaleberg says:

    So are complex hedged investments being arbed out? Is it getting too easy to watch for bets and generate a long tail event, especially in the face of increasingly desperate attempts at ROI?

  5. Jonas says:

    The only problem I have is that modern financiers don’t seem to understand you can shear a sheep many times, but only skin a sheep once. The old school bankers also arbed out people’s gullibility but had the good sense not to take that final step. What’s with playing chicken with the universe — why are they daring the world to end the game for them? They make a great living without doing that.

    It’s that apocalyptic thinking that seems to drive the current madness. Get while the gettin’ is good, because somehow they’re afraid there’ll be no gettin’ soon.

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