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Thursday, December 03, 2009

Market manipulation and information assymetry

A friend in one of my discussion yahoogroups posted an article, "The Catastropic end of market manipulation" by Bix Weir. The article talked about market manipulation by some key finance officials of the Obama government and the rise from near-bankruptcy by some big American banks last year, to very high stock prices this year.

End of market manipulation?

There is NO end to market manipulation, and there can never be.

You get off on a bus terminal in a city or municipality that you are not familiar with. The tricycle driver that will take you to your destination will try as much as possible, to charge you 2x, even 5x, the regular fare if they know that you do not know your way to your destination. That's market mannipulation.

Buying a cellphone in Baclaran or other bargain centers hoping that the price there for the same unit and model of a Nokia or Samsung is at least 20% cheaper if you buy it from a typical mall. You didn't know that the seller could sell it to you even at 70% cheaper and still make a profit, and proceeded to sell you the unit at 21% cheaper. Still market manipulation.

A person with PhD can give a political or economic advise to a rich man or corporation for a handsome price, even when the adviser or consultant perfectly knows that the advice he gave was next to garbage.

Go up the ladder of financial transactions, market manipulation -- by a seller or a buyer -- is possible anywhere, anytime. Why? Because of information assymetry, or unequal knowledge, imperfect information, between a buyer and a seller.

The good news is that with information revolution like the internet and google search and facebook capitalism, information across almost all sectors are becoming more generalized and accessible. For instance, you want to go to Oslo or Helsinki. Without the internet, your only source of information of the airline that can take you there, their plane fare, discounts if any, etc., will be your travel agent or by calling the different airlines by phone, which is very time consuming and even costly. With internet, you can check the various airlines landing at End of market manipulation" ?

There is NO end to market manipulation, and there can never be.

Getting off on a bus terminal in a city or municipality that you are not familiar with. The tricycle driver that will take you to your destination will try as much as possible, to charge you 2x, even 5x, the regular fare if they know that you know your way to your destination. That's market mannipulation.

Buying a cellphone in Greenhills or Baclaran hoping that the price there for the same unit and model of a Nokia or Samsung is at least 20% cheaper if you buy it from Glorietta or SM. You didnt know that the seller could sell it to you even at 70% cheaper and still make a profit, and proceeded to sell you the unit at 21% cheaper. Still market manipulation.

A person with PhD can give a political or economic advise to a rich man or corporation for a handsome price, even when the adviser or consultant perfectly knows that the advice he gave was next to garbage.

Go up the ladder of financial transactions, market manipulation -- by a seller or a buyer -- is possible anywhere, anytime. Why? Because of information assymetry, or unequal knowledge, imperfect information, between a buyer and a seller.

The good news is that with information revolution like the internet and google search, even facebook networking, information across almost all sectors are becoming more generalized and accessible. For instance, you want to go to Oslo or Helsinki. Without the internet, your only source of information of the airline that can take you there, their plane fare, discounts if any, etc., will be your travel agent or by calling the different airlines by phone, which is very time consuming and even costly. With internet, you can check the various airlines landing at Manila airport (NAIA), get their destinations, itinerary, fare, etc. That's reducing the cost of gathering info, that's reducing or abolishing info assymetry. Market manipulation can be minimized or eradicated, at the micro level; ie, at the personal or corporate level.

Most of the points in that article are more of alarmism.
Nothing to worry or wonder about huge jump in asset prices, later to crash.
Corporate expansion and bankruptcy are 100 percent part of capitalism.
Capitalism without failure is like religion without sin.

So the recent global financial turmoil was just natural. The extent of financial dislocation may have been big compared to previous financial crisis, but it's all part of the natural business cycle. Some guys make great business decision, like a successful technological innovation, they make super-super big money and profit. Fine. Other guys make huge risks and made huge losses later, they go bankrupt. Fine.

This is not to say that market manipulation per se is desirable. It's not. Manipulation is just a natural behavior of some people if they know that they can hoodwink some guys, and get away with any crime later on.

That is why Gloria Magtatagal Arroyo, or better yet, Gloria Magtatagal-Garapal Arroyo, will keep manipulating us, because they know something that they think we do not know. LIke they know that they can bribe some influential media or election officials at X price, while we thought that those guys that they bribed were unbribable.

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