Tuesday, February 08, 2011

Rational Market Theory

As usual, my previous blog led me to more information which led me to another blog idea. When I tried to come up with a title a little more catchy than “Huh?”, I came up with even more information. Let me get out of this continuous loop and move on.

Exploring the rational market theory

”There was a model that dominated economics for almost 40 years. It's called the rational market theory. And what it said, in a very brief nutshell, is that the market is always right.”

You hear me whine about “The Market” all the time because I’m so tired of hearing conservatives talk about “The Market” being right all the time and “The Market” was so much smarter than us all, blah blah, blah.

I noticed these conflicting tidbits from two previously linked stories.

25 Highest-paid men

”1. Bob Nardelli -- Former Chairman, President, and CEO*
Home Depot (HD) --2006 Total compensation: $133.7 million*”


Portfolio's Worst American CEOs of All Time

”17. Bob Nardelli -- Nardelli was fired from Home Depot after losing market share, alienating executives, downplaying customer service, and refusing to cut his fat pay package. He was then hired by the private equity group Cerberus, which put him in charge of its struggling Chrysler unit. There, he took billions in government aid, only to face an ultimatum: Merge or face certain liquidation. ”

No, he isn’t the only example. You only have to move one space over to #18 of the worst. Stan O’Neal is #10 on the highest paid list with $46.4 million. Stan O’Neal was the the CEO of Merrill Lynch.

Disclosure: I own several hundred shares of Home Depot. I don’t own any shares of Merrill Lynch. Nobody owns Merrill Lynch anymore. Mr. O’Neal drug Merrill Lynch into the CDO and subprime mortgage scheme. When that blew up, the U.S. government arranged a shotgun wedding with Bank of America.

“The Market” isn’t rational. Even the people running it aren’t always rational. That was the reason it was regulated after The Great Depression. That’s the reason it should be regulated again -- after The Great Recession.

Don Brown
February 8, 2011

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