Wednesday, October 28, 2009

Bubble talk!

I am getting a bit nervous with all this bubble talk.

How are they intent to do their bubble-busting? Are the regulators now going to appoint bubble-measurers? Are we going to have these assets bubble-meters being showed off in Times Square? What instruments to puncture them are going to be used? Talk about value of inside information!

Much the same way it sounded so utterly reasonable to have the credit rating agencies influence how much equity banks should have, and look where it led us. This reasoning just like it assumed that a risk of default was a risk of default, assumes that a bubble is a bubble, and that there are no risks derived from pre-announcing that a bubble will not happen.

And what if the prime motor of development is the belief in the possibilities of the next bubble? If we ex-ante eliminate the possibility of a real bubble, how many will just stay in bed while other countries, those with no qualms about a crisis because for them any status quo is worse, will go forward?

If there is something truly lacking in the current discussion on regulatory reform that is the consideration of the good things that come with risk-taking and now, the good things that come from bubbles.

Me, I really would love the world to keep on taking risks and blowing bubbles, even at the cost of suffering huge setbacks, as long as that takes us forward. Because of this, more than worrying about where the next precipice might be, I would try to make more certain that we are heading in the right direction.

Others, baby-boomers and wimps, on the contrary, seem to be satisfied with what they have achieved and are happy settling for just keeping it.

This is a great opportunity for developing countries to catch up... I can already see the billboards “Have bubbles, willing to party, for real, no adult supervision, foreign investors welcome!” While the developed countries set up theirs, on Wall Street, announcing “Welcome... guaranteed no bubbles!”

Real capital might be coward... but it sure loves bubbles.