I find the whole subject very interesting, and I am sure a lot of people here would be interested too. I'm also confident that many people here know more about this subject than I do, and I'd be interested to hear your thoughts on it. In the conversation below, I am G M.

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A N: On the nature of the current state of the market: "Even if each individual algorithm makes perfect sense, collectively they obey an emergent logic--artificial intelligence... It's the machines' market now; we just trade in it." -January 2011 Wired, Bull vs. Bear vs. Bot

G M: if it was the machines' market, it would be predictable. We still need to get away from our reliance rational economics in order to be better prepared for panics and disasters -- that's when we need to know what to do the most.

A N You clearly have no idea what you are talking about (just like I didn't merely two weeks ago). It actually is a highly rational market - the reasoning, however, is being done by machines - with machine learning, and machine reactions to other machines' trades. 75%+ of all market transactions are entirely automated and performed through various algorithms.

G M: It may very well be this way, and it's true that Black-Scholes and other pricing models have become almost self-fulfilling prophecies as a result. However, that still doesn't explain the massive sell-offs and panics on wall street. It's interesting, though, because rational economics postulates that all the participants are perfectly rational and aim to maximize their utility functions, with perfect knowledge of the market. The funny thing is, that hypothesis is becoming more and more correct :)

G M: Are you sure I don't know what I'm talking about? I researched this topic -- perhaps from another direction -- a few months ago, because it caught my interest.

http://hbr.org/2009/07/the-end-of-rational-economics/ar/1

http://twitter.com/GregMozart/status/13266329981

G M: Actually this is what triggered me to look at it in May, I think. Take a look : http://www.pbs.org/wgbh/nova/body/mind-over-money.html

T H: What a lot of bunk! The collapse of economics is the result of discarding rationality in favour of mixed principles such as egalitarianism. Bankruptcy is a logical result of political altruism: the mixed economy we've had for decades. The end result could only be bankruptcy.

http://aynrandlexicon.com/lexicon/inflation.html

For a good look at economics, in terms of fundamentals, may I suggest Richard Salsman. Forget Greenspan. He pretended to hold to capitalism while betraying it fully in his life and actions as he strove for power. Greenspan was highly intelligent, but no capitalist.

G M: The fed was established in the 1970s I believe. The government did not exercise much control over the markets until 1930, ever since Edward Bernays convinced the wall street brokerages that the common man could own stock in companies, leading to a huge public stock market.

I love this stuff -- because I work with an online version of it -- social applications. Mass movements organize around a system, and the way the system is set up greatly affects the overall behavior of the crowd. We can't always predict how the crowd will act, but we know it greatly depends on how the system itself is set up. I think I will be learning this for years. But Bernays was a master of PR and knew that the collective unconscious had potential to change the world, through revolution (he put his uncle Sigmund Freud's ideas and indeed is responsible for making Freud famous in the first place). He basically invented the consumerism we have today, and commercials tying Axe and Coca Cola to sexual success and so forth. As humans we individually strive for emotional reward. The revolutions aren't as huge anymore because we can veg out and watch TV shows, go online, and satisfy our emotional desires that way. Women also love to do it through shopping. Like it or not, emotions will always be a part of collective behavior, whether it is in a market, or a revolution.

Watch http://video.google.com/videoplay?docid=6718420906413643126