Is there a point where Gov intervention is harming/distorting/rendering-useless calculated risks/choices of investors?

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corp_sharecropper
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Is there a point where Gov intervention is harming/distorting/rendering-useless calculated risks/choices of investors?

Post by corp_sharecropper » Thu Mar 26, 2020 1:38 pm

I realize that, yes, pretty much any investment has some degree of legislative/regulatory exposure to Fed/Gov intervention in the market place, and investors ought to take that into account.

But....

It seems like if the Gov/Fed is ALWAYS going to come to the rescue of any sector anytime they're looking down the barrel, the risk aspect is lowered and distorted along with making the risk more difficult for investors to quantify and consider. I mean, I know most of us are long equities, but consider that there are investors putting their money on the line, whether to hedge their own long positions or simply that's the side they feel best suited to invest in, and then along comes the gov/Fed, picking and choosing winners/losers and who to rescue and how.

I'm not saying I'm against things like stimulus or intervention to save employees/businesses, I don't really know how I feel about it really, but something about swooping in and arbitrarily/haphazardly limiting the real risk of a business/industry rubs me the wrong way. It feels like some exogenous, artificial, parental force messing with & distorting the beauty of the ideal of an open, transparent, and free market (yes, I'm talking about an idealized version, and the one we, generally speaking, usually are striving for).

Again, not against it, unsure how I feel, but I'm definitely curious about what others feel about this aspect (eg. intervention how it relates to risk and free markets)... NOT interested in politics and I think I've steered quite clear away from any of that, so let's not go down that road and ruin what I hope can be an interesting discussion. :sharebeer

mega317
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Re: Is there a point where Gov intervention is harming/distorting/rendering-useless calculated risks/choices of investor

Post by mega317 » Thu Mar 26, 2020 1:48 pm

I don't know that arbitrary is the right word. In 2008 there was real concern that the economy couldn't recover without major intervention. There was serious debate and ambivalence about bailing out the various financial institutions. I won't pretend to understand all the motivations of the current government but they aren't throwing darts. Specific government actions are just another unpredictable variable like housing crises and pandemics and wars and on and on. You make a good argument for low-cost total market investing since you and no one can predict these things or their consequences.
https://www.bogleheads.org/forum/viewtopic.php?t=6212

cbs2002
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Re: Is there a point where Gov intervention is harming/distorting/rendering-useless calculated risks/choices of investor

Post by cbs2002 » Thu Mar 26, 2020 2:24 pm

When government intervenes using fiscal and monetary policy, yes it is to some extent picking winners and losers, and yes it is messy and confounded by interests that have captured regulators and elected officials. But why not just build that into your assumptions?

The U.S. economy at least is mostly driven by consumer willingness to transact. Behind this is confidence in personal health, security and income. When that confidence vanishes in the span of a few days or weeks, without intervention you could see a dramatic increase in human suffering and conflict in short order.

So just build this reality of living in a democratic society where government will use policy to intervene into your assumptions. Yes it distorts, but predictably so.

As an example, letting Bear Stearns and Lehman go didn't really affect most people's health or security. Letting multiple automakers or airlines fail at once, or letting millions of workers who do not have benefits lose their jobs all at once, absolutely would. To me, that is the predictability of intervention. While I couldn't predict exactly what this week's interventions would be, I felt comfortable assuming that there would be a dramatic intervention that would bounce the markets at some point soon. If we see another huge slide, I would predict additional intervention, and so on.

Sorry if this is political by the rules of this forum. I'm new here.

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Kenkat
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Re: Is there a point where Gov intervention is harming/distorting/rendering-useless calculated risks/choices of investor

Post by Kenkat » Thu Mar 26, 2020 3:29 pm

I too will also try not to be political, but am very interested in this topic from a historical perspective. Philosophy and economics become intertwined to form the basics of how a society lives and operates.

Capitalism on the surface seems like a very fair system. Everyone works as hard as they can (or chose to) and the “Invisible Hand” ensures that capital gets distributed in the optimal manner, prices are set properly and everyone benefits. With the advent of the industrial revolution, however, unfettered capitalism led to the real world experience of the rich getting richer and the poor getting poorer. Wealth gets concentrated at the top and locked away forever. Cartels and monopolies are formed. The Carnegies, Astors, Vanderbilts, Rockerfellers (the robber barons) become fabulously wealthy. The economy was punctuated with periodic booms and busts and life for the common person was pretty hard.

There were some modest attempts to address this - income taxes, estate taxes, trust busting, etc. There were some more radical attempts to solve this as well. Ideas of new world orders, where the workers were at the forefront, became popular. This led to things such as labor unions and in some countries, violent revolutions, where businesses were seized, monarchs killed or imprisoned, and wealth redistributed by force.

When the Great Depression hit, I feel like pure capitalism died. Between the revolutions and political upheaval of the 1920s and 1930s, it seemed something had to change. Some countries introduced social programs funded through taxes, including the United States, England, and France. Other adopted more radical systems such as communism or fascism.

What I think we have seen is that capitalist societies, pure capitalist societies, are not as stable as would be desired when the goal is “life, liberty and the pursuit of happiness”. On the other hand, socialist or communist societies, in spite of the idealistic concept of “from each according to his ability, to each according to his needs”, don’t seem to work. They just don’t.

So, here we are in a crisis. I think we do have government and fed “interference” or “action” being taken that absolutely will impact the risk/reward profiles of different investments. The government is somewhat picking winners and losers, but in the interest of overall stability for markets and our societies in general. I think the experience, based on the results of the 20th Century, is that when the poor or the common man has no hope, bad things happen. So, I think we are striving for the proper balance of government vs. individual liberty, something that, going back to my thoughts about economics and philosophy being intertwined, mankind has pondered for hundred if not thousands of years.

halfnine
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Re: Is there a point where Gov intervention is harming/distorting/rendering-useless calculated risks/choices of investor

Post by halfnine » Thu Mar 26, 2020 3:30 pm

Yes.

So I just buy the market and don't try to time it (largely).

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Re: Is there a point where Gov intervention is harming/distorting/rendering-useless calculated risks/choices of investor

Post by LadyGeek » Thu Mar 26, 2020 4:04 pm

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