An economics, investment, trading and policy blog with a focus on Modern Monetary Theory (MMT). We seek the truth, avoid the mainstream and are virulently anti-neoliberalism.
Alibaba was trading in a range. Broke out with adoption of fintech as a business model and crashed when the regulators took away the punchbowl to address systemic risk. Even Charlie Munger said it was the smart thing to do and the US should follow suit.
This is prudence on the part of the government. Alibaba is a private company and systemic risk means that the government would have been on the hook to it for a bailout, as in the US in GFC. They appear to be OK in taking that risk with respect to state banks, but not the private sector, which creates even more moral hazard.
When they are overvalued, yes. That is how markets work.
A problem with capitalism lies in accounting. The cost on which market price is based is often not the true cost including externalities.
Shunting moral hazard onto the public purse is not included in the true cost. There are two ways of dealing with this, either preemptively to eliminate moral hazard, a perverse incentive, or else aded the cost of systemic risk into the market value as premium through taxation, fees, etc.
At the time of the GFC, US government bailed out the banks and hung the debtors out to dry. The Chinese government decided to preempt, probably learning from that.
For capitalism to work, perverse incentives that encourage rent seeking and rent extraction need to be eliminated and true cost accounting is the way to do it.
Chartered accountant and professor of accounting Richard Murphy has explained this.
Buying opportunity in Chinese stocks, especially tech. Their future is on solid ground. Only the the flashiness is faded.
I find it interesting how the financial commentators assess everything in terms of market opportunity, mostly short term, while ignoring the affect on society of deployment of resources, especially long term.
This is undermining capitalism as a socioeconomic system, and more and more people are starting to recognize the disaster in the making. Except the people in the financial markets, that is.
It’s a Chinese version of Amazon.com don’t over complicate it…
Not exactly. The kerfuffle was about 1) AliPay, a digital payments service, which was also involved in lending, not Alibaba as a competitor of Amazon. It was competing with Tencent in fintech, which said it was OK with regulation whereas Jack Ma confronted the government, and also 2) scheduling a huge IPO while there was an ongoing conversation with the government about regulation that was not yet resolved. It was also a clear message 1) to Chinese billionaires that they were not privileged and 2) that the socioeconomic system takes precedence over markets.
IN my view, the kerfuffle has been overblown and stock prices have dipped well below what seems reasonable given the circumstances going forward. They will work this out.
8 comments:
Alibaba was trading in a range. Broke out with adoption of fintech as a business model and crashed when the regulators took away the punchbowl to address systemic risk. Even Charlie Munger said it was the smart thing to do and the US should follow suit.
This is prudence on the part of the government. Alibaba is a private company and systemic risk means that the government would have been on the hook to it for a bailout, as in the US in GFC. They appear to be OK in taking that risk with respect to state banks, but not the private sector, which creates even more moral hazard.
Of course, ZH is going bananas.
Yes it’s good when firms go down 50%…. #paradox
Down is the new up….
Stability creates instability…
Yes it’s good when firms go down 50%
When they are overvalued, yes. That is how markets work.
A problem with capitalism lies in accounting. The cost on which market price is based is often not the true cost including externalities.
Shunting moral hazard onto the public purse is not included in the true cost. There are two ways of dealing with this, either preemptively to eliminate moral hazard, a perverse incentive, or else aded the cost of systemic risk into the market value as premium through taxation, fees, etc.
At the time of the GFC, US government bailed out the banks and hung the debtors out to dry. The Chinese government decided to preempt, probably learning from that.
For capitalism to work, perverse incentives that encourage rent seeking and rent extraction need to be eliminated and true cost accounting is the way to do it.
Chartered accountant and professor of accounting Richard Murphy has explained this.
Down is the new up…Down is the new up…
Buying opportunity in Chinese stocks, especially tech. Their future is on solid ground. Only the the flashiness is faded.
I find it interesting how the financial commentators assess everything in terms of market opportunity, mostly short term, while ignoring the affect on society of deployment of resources, especially long term.
This is undermining capitalism as a socioeconomic system, and more and more people are starting to recognize the disaster in the making. Except the people in the financial markets, that is.
It’s a Chinese version of Amazon.com don’t over complicate it…
It’s a Chinese version of Amazon.com don’t over complicate it…
Not exactly. The kerfuffle was about 1) AliPay, a digital payments service, which was also involved in lending, not Alibaba as a competitor of Amazon. It was competing with Tencent in fintech, which said it was OK with regulation whereas Jack Ma confronted the government, and also 2) scheduling a huge IPO while there was an ongoing conversation with the government about regulation that was not yet resolved. It was also a clear message 1) to Chinese billionaires that they were not privileged and 2) that the socioeconomic system takes precedence over markets.
IN my view, the kerfuffle has been overblown and stock prices have dipped well below what seems reasonable given the circumstances going forward. They will work this out.
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