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Comment by jacques_chester | Hacker News Reader

> This is one thing to me which seems to me to be a genuine failing of an efficient market.

You seem to assume that all risk is meant to be carried by the banks. As you note, such a thing is possible (up to the risk-bearing capacity of any given bank), but such banks would be very expensive. Consequently, most customers bank with riskier institutions and this places more of the risk back onto them.

So, in actual fact, this is the market doing what it does pretty well: solving a hyper-distributed problem with heterogenous agents with numerous complex, incompatible preferences.

Sometimes we don't like the outcome. That doesn't mean that the market has "failed"; it just means that we don't like the outcome.

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The market is a solution to a problem (or perhaps a set of problems). In the example of in the grandparent's post, that solution does not adequately deal with the problem at hand. This makes it a bad solution.

Even if we can't think of a better solution right now, we shouldn't stick our collective heads in the sand when we notice errors in our current approach. Highlighting errors is important, because even if we can't fix them right now, we may be able to in the future. If we don't know about the flaws in our current approach, it it impossible to even attempt to think of ways to improve them.

The market is an emergent phenomenon. It's not a designed institution. Hayek talks about this misattribution as the root cause of a lot of misunderstanding.

People do think of ways to adjust for things about the market that they don't like. Those adjustments are generally imposed from outside by force of law and quite a few of them are later modified or removed because they had seriously unpleasant side-effects (such as the total disappearance of a market).

Being angry at an emergent phenomenon like markets is like being angry at the weather, or upset about evolution. It's pointless.

There are certainly aspects of our market economy that are emergent. Trade is as old as humanity itself, but not all aspects of the economy are so old, nor as immutable.

The modern corporation, for example, is a relatively new invention. Depending on your definition, anywhere between a few centuries and a few decades old. Compared to the time scale on which human evolution has taken place, that's practically nothing. In those decades or centuries, we and our ancestors have chosen particular shapes for our economy. Not all of those choices are final.

Whether the choices that influenced this particular example can be changed, I don't know, nor do I feel qualified to hazard a guess. However, I stand by my original point: it makes no sense to refuse to consider how we might improve the system.

Modern humans have never refused to consider how to improve everything.

But it is important to realise when we're licked. We can't solve the TSP in linear time, we can't travel faster than light and it looks like -- in both theory and practice -- markets are better at solving economic problems than planned alternatives.

The problem is not restricted to banking.

The problem is that any two competitors X and Y, in any field.

If X does not plan for low-probability failure and Y does, then Y will not have the additional inefficiency/overhead and so X will out-compete Y.

If the time frame for low-probability failure is long enough, and if being out-competed means the end of your business, then an efficient market means that risks which typically take longer than time T to manifest will not be handled, where T is the time for X to out-compete Y, given their advantage.

What's your point? Customers will choose the mix of cost and risk that makes them comfortable.

I guess that my point is that anyone who thinks that a market will give them long-term stable institutions/companies is wrong.

I think that conclusion is likely to be surprising/controversial to some/many people.

> I guess that my point is that anyone who thinks that a market will give them long-term stable institutions/companies is wrong.

Definitely. It's a complex, dynamic system that requires enormous amounts of failure, misattribution and foolish optimism to work.

The beautiful thing is that it turns these human inevitabilities from negatives into positives.

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