Reportage in The Wall Street Journal on April 3th states that “A fund owned by China’s foreign-exchange regulator has been taking stakes in some of the country’s biggest banks, raising speculation that it may be a new member of the so-called ‘national team’ of investors the Chinese government unleashes to support its stock market.”
Statists and interventionists around the world (read: those who embrace State Capitalism) think “Big Players,” as the academic literature has dubbed them, will protect us from economic storms. While there is a budding and serious academic literature on Big Players – aka Market Disrupters – the financial press virtually ignores the Disrupters’ potential to bury us. Indeed, instead of stabilizing markets, the Big Players disrupt them. They are the purveyors of instability. For those who wish to grapple with the technical literature, I recommend: Roger Koppl. Big Players and the Economic Theory of Expectations. New York: Palgrave Macmillan, 2002.
Big Players have three defining characteristics. Firstly, they are big — big enough to influence markets. Secondly, they are largely insensitive to the discipline of profits and losses, insulating them from competitive pressures. Thirdly, their freedom from a prescribed set of rules affords them a high degree of discretion.
With these characteristics, Big Players are hard to predict. In consequence, they can disrupt. They divert entrepreneurial attention away from the assessment of strictly economic market fundamentals, such as the present value of prospective cash flows. Instead, the focus shifts toward attempting to predict the actions of Big Players, which are inherently political and unpredictable. This reduces the reliability of expectations, replacing skill with luck.