MainandWall
MainandWall
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Saturday
Aug022014

NFiM... Modular-Finance~in~Motion...™

Walk down WALL Street:

CAUTION - You are Not on MAIN Street or in Kansas anymore!!!

 

Major Tourist Attractions:

A River on one side and a graveyard on the other!!!

An Animal Kingdom including snakes, sharkes, bulls and bears and pigs...

Home to Liars poker and three card monty and the dream machine

 Official language: Financial Gibberish

 

Beware of geeks bearing models, fortune tellers aka content providers and the shill in the game!!!

 

 And Please...Don't Feed the Animals...

 Have a Pleasant Stay...

 

 

 

 

 

 

          "Fixing The Losers Game"

                      Design Thinking applied to The World of Finance

       The Market for 'Lemons" and Investment Management Services


 Hat Tip ~ Keith Ambachter,

Director at The Rotman International Certre for Pension Management (ICPM)

 

George Akerlof was awarded the 2001 Nobel Prize in Economics for a profound idea captured in his 1970 article "The Market for 'Lemons' : Quality Uncertainty and the Market Mechanism", in which he showed that the classic "value-for-money" outcome attached to market competition requires informational symmetry between buyers and sellers. If sellers know more about what they are selling than buyers know what they are buying, the sellers will be able to extract too high a price from the buyers for too little value. Although Akerlof chose the used-car "lemons" market to make his point, he could just as well have chosen the market for investment management services,  - it would be hard  to conceive of a market with greater informational asymmetry between buyers and sellers. If asymmetrical information is the underlying problem in the market for investment management services, then simply removing the informational asymmetry must be the solution. Can we create a demand side in that market that understands the realities of financial markets, security pricing, and the economics and motivations of security issuers as well as the supply side does? This question is essentially about institutional design. So, more specifically, can we create knowledgeable investment institutions with both the requisite knowledge of finance and economics and a legal requirement to use that knowledge solely in the best financial interests of their clients? Put more succinctly, can we create knowledgeable investment institutions with clear fiduciary responsibilities to their stakeholders/beneficiaries?