Unbelievably, it is a full decade since Lehman Brothers filed for bankruptcy – the event that sent global financial markets into a tailspin.
The crash was the ultimate demonstration of market failure – and, many would argue, the failure of free market ideology.
A particular bugbear is the ‘efficient-market hypothesis‘, which is the theory that asset prices fully reflect all available information. The fact that ten years ago the value of entire companies and asset classes collapsed overnight is surely proof that the hypothesis is wrong.
Except that depends on what you mean by ‘value’. More than two millennia before the hypothesis was formulated, Publilius Syrus said “Anything is worth what its purchaser will pay for it.”
In that respect, markets are never wrong. Indeed, modern markets have never been more right – because they gather information about more purchasers (and what they’re willing to pay) than ever before.
One can object that this is missing the point – and that what purchasers are willing to pay for something can become totally detached from any rational assessment of its ‘deeper’ value (however one might want to define that).
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