[Nielsio]

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
One market inefficiency occurs in the case of fraud.

[/ QUOTE ]


Elaborate plz.

[/ QUOTE ]

Let's imagine that there is an investment bank named Rule Through Monetary Manipulation. Rule Through Monetary Manipulation has all this money and needs to generate a return on that money by lending it out to business enterprises in the form of capital investment. Naturally the members of the board of Rule Through Monetary Manipulation would like to get the best return on the money they invest so the can have more of it and better Rule Through Monetary Manipulation.

They find a little company called Son of a Preacher Man whose president is Ken Lay. Ken Lay has lots of smart boys who work for him and a crack auditing firm that provides him with consulting services and financial statements. Son of a Preacher Man is the most profitable company in the universe. All the auditors, employees, board of directors, and investors say so.

Naturally, the board of Rule Through Monetary Manipulation wants to invest their money with Son of a Precher Man. Only, Son of a Preacher Man isn't honest. It isn't profitable at all. The only cash flow that they in fact have at Son of a Preacher Man is the investments made by greedy banks like Rule Through Monetary Manipulation. Upon this discovery, the board of Rule Through Monetary Manipulation recieves an offer from Ken Lay stating that they will get part of their investment back if they help Son of a Preacher Man persuade other investors to give their money to Son of a Preacher Man. As a result, this false investment deprives the market of efficiency in the reinvestment of capital in truly profitable ventures. Therefore, fraud leads to market inefficiency.

[/ QUOTE ]


Let's simplify.

Let's say there a company who sells chicken meat. Company A requires two live chickens to sell 100 grams of processed meat. They buy chickens from the market.


Is that what you would call a 'market inefficiency'? If so, why.


Remember that you state the reason for governmental invervention because of 'market inefficiency'; so clearly those actions cannot contain the same problems.