August 14, 2005
Ribstein on the Grand Illusion of Securities Trading
Posted by Gordon Smith

Larry Ribstein blows the cover off the grand illusion that is securities trading:

The securities industry desperately needs a constant supply of little guys who fail to realize that they can’t make money on frequent trading, and that they should stick to index funds.  Otherwise, where would all those commissions and fees come from?

And securities regulators need us to think that we can win as long as the market isn't "rigged" and the "truth" is spelled out nice and simple for us....

In short, capitalism and its regulators desperately need to hide fundamental truths about investing from the little guy. You might say the whole setup is a vast conspiracy that depends on investors being foolish and irrational and does everything it can to perpetuate this irrationality. 

This is very entertaining, especially when Larry invokes Soylent Green, but who are these big, bad regulators keeping "fundamental truths" from the little guys? Most people, even regulators, don't believe that markets are efficient. There is no "vast conspiracy" to mislead individual investors, just lots of irrationality in the world.

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