[adventured]

No, I'm correct. The market always buys value, and historically always has. The sole question is price.

There were in fact willing buyers after the great depression. You're admitting I'm right by pointing out the great depression: all of those assets were eventually purchased by the market, that's a tremendous example of what I'm talking about. The only thing you can say is: it took too long, but that's merely an opinion. Besides, the government not only caused the great depression, but then made it much worse. I'd argue the market would have corrected dramatically faster had the government & Fed not screwed things up so massively.

The problem in this case was the market price would have bankrupted the banks that were sitting on worthless loans. And the price deterioration in the housing market from the sinking toxic assets would have wiped out trillions in wealth for the middle class.

[polarix]

You may have ended your counterfactual story too soon. It's hardly a triviality that it would have destroyed trillions of perceived middle class wealth. Such a perceptual shift changes the characteristics of consumer demand in a way that would have massive worldwide impact. Not only would American businesses have suffered (many fatally), and dramatically reduced investment, but American debt-financed consumer demand is one of our biggest exports, and would have precipitated even more disastrous global readjustments. This is the kind of thing that causes loss of life (through revolutions and wars, if not simple starvation) in poorer countries and regions.

[tptacek]

Something market something something irrational longer something solvent.

[syllogism]

> No, I'm correct. The market always buys value, and historically always has. The sole question is price.

https://en.wikipedia.org/wiki/Keynesian_beauty_contest

https://en.wikipedia.org/wiki/Pluralistic_ignorance

The market can't buy value if everyone believes everyone else believes that the value isn't there. (Actually you can go any number of layers of belief; what you need is shared knowledge, in the sense logicians use the term.)

Everyone in the market is trying to guess what everyone else in the market will do, who are also trying to guess what the market is doing. Once you crash, you don't just need sentiment-of-value to improve, or even sentiment-of-sentiment-of-value. You need sentiment-of-sentiment-of-sentiment...etc.

So, you can get grid-lock. Which is why you need the government to step in.

[bko]

I think the Keynesian beauty contest is less relevant for structured products. If others don't share the same view of the underlying collateral you may not be able to sell them in the near future. But if the collateral performance meets your more optimistic viewpoint, you will be compensated and eventually the bond will be paid off. The securities aren't like equities with some some arbitrary value associated with them that can only be captured through sale to another party (excluding dividends, buyouts, etc).

There were probably a lot of structural issues that prevented many of the large players to purchases these assets though (mostly liquidity). This is probably the justification the Federal Reserve used to purchase said assets.