I can't think of anything I disagree with that you wrote, Kap. The only quibble I might have is that the "public" information is not generally available to all the investors, only to those with the inclination to follow the market (whichever market segment they might be invested in). So, to that extent it works. In the grander scheme, though, it is still based upon expectations, which is the fundamental flaw in the system. Even worse, though, the market in general is being influenced by big investors chasing short-term returns - this is the sloshing I was referring to earlier. The worst offenders are the investment banks, like Bear Stearns, that bid up offerings hoping to capitalize on the upswing, but when they pull out (or crash), that segment of the market is sucked into the vortex created. That is what happened with the CDOs created with sub-prime mortgage paper, and that influence created a huge instability in the overall stock market. It happens on a regular basis as money people get creative with finances, and program investors chase returns. It comes, in my view, from ignoring the production economy in favor of the investor economy. When they are out of sync - watch out!

A well reasoned argument is like a diamond: impervious to corruption and crystal clear - and infinitely rarer.

Here, as elsewhere, people are outraged at what feels like a rigged game -- an economy that won't respond, a democracy that won't listen, and a financial sector that holds all the cards. - Robert Reich