GREAT DAYS IN FINANCE.

GREAT DAYS IN FINANCE. This Sebastian Mallaby column describes how the biggest mortgage lender in the country, Countrywide Financial Corp., was subject to a “run on the bank” from depositors last week, even though it “has access to enough cash to pay everything it owes everyone for more than a year, analysts say.” He points out that “Efficient-market theory assumes away important real-world frictions; it supposes, for example, that the smart guys can borrow all they need to trade on market inefficiencies until they go away.” Mallaby links to this post of August 10th from Brad De Long, who says, “Yes, today we have reached the limits to arbitrage: most of the people who spend their lives trying to buy low and sell high using other people’s money and leverage have given up extending their positions (and so pushing prices back toward normal-time fundamentals), and are hunkered down simply hoping to survive the next month.” Brad De Long entitled his post of August 10 “Today Is a Great Day in Finance!” Kids, there are still more great days in finance immediately ahead of us.