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Yet More Preliminary Throat-Clearing on How to Think About Financial Markets

First, financial markets are a place where savers and builders, diversifiers and insurers, and principals and agents coming together to make win-win deal. Second, financial markets are also a place where con artists and marks, savers and procrastinators, and gamblers and houses meet to make deals that are ex-ante losers for at least one of the parties. And, third and last, financial markets are a place where herd animals and positive-feedbackers on the one hand and those who do not grasp the benefits of diversification on the other hand degrade the ability of savers and builders, principals and agents, and diversifiers and insurers to make their ex-ante win-win deals.

We would like to have a financial market that maximizes the freedom of the first of these three groups of participants, and minimizes the impact and influence of the second and third of these three groups...