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Sunday, January 03, 2016

The Dumb Bid Markets

 The Bulls and the Bears.... and the Dumb Bidders

Take the time to read this article, and then think how often you have heard that Wall Street provides a real benefit - thus, justifying their enormous profits - to the economy.

What financial people very often do is provide a dumb bid to provide liquidity for the markets. When I was growing up, we were taught that market makers put their own assets on the line to provide liquidity. In retrospect, how could we have been so naive?
Particularly in Junk Bonds...

In essence, the Bank Bail-Out was an involuntary Dumb Bid. The American Public provided the money for the Dumb Bid to purchases the "Troubled Assets" of banks, and these "troubled assets" were in every respect equivalent to Junk.

Wolf Street
Howling About Business And Finance
Where’s the “Dumb Bid” in the Junk-Bond Rout?
by Wolf Richter • December 28, 2015
... A point that repeatedly emerges from discussions of the current state of liquidity is the importance of the dumb bid   (“dumb” is not used in this context in its literal sense of “mute” but in the slang sense of “stupid”).  The only reason market-makers were sometimes able to make semi-respectable bids on deteriorating credits is that they had an outlet in the form of uninformed buyers...
(my emphasis added.)

How much of your pension has been drained off by your own or your representatives' being sucked into a dumb bid? Probably quite a bit.


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