Reply to Enrique's query

Max Sawicky sawicky at epinet.org
Fri Mar 5 07:16:12 PST 1999



>
> In the quote that I submitted out of context from the website
> www.geocities.com/CapitolHill/Lobby/2379/liquid.htm it
> seems to me that Goldner is talking about the lines of
> credit . . .

What mystifies me about this idea is why assets are always incorrectly overvalued by people who ought to come to know better.

I invent a new capital equipment-widget which takes on some capital value based, I presume, on expectations of its future profitability. In a subsequent period, some genius invents a new widget-prime that can do the same thing at lower cost. My original widget suffers a capital loss and triggers bankruptcies for those who have invested in it, giving rise to the crises alluded to in the Goldner language. Question: why are investors so stupid that they always overvalue at the outset, in light of the ubiquity of technological advance and other uncertainties that can undermine their investment? Wouldn't they discount their initial valuations in this light, foreclosing the subsequent process noted by Goldner?

mbs



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