Centrality of market prices “Market prices cannot save us from market failures.” I have borrowed that phrase from one of the commentaries of Avinash Persaud, who has been one of the most vocal critics of reliance on “market prices” for regulatory and accounting frameworks. The inherent paradox is quite appealing and intuitive.
The response of the regulated entity and the regulatory prescriptions to price movements in prices is standard and symmetric. The issues of reliability of “market prices” apart, where does the cycle get broken? The well functioning deep and liquid financial markets were supposed to reflect the “true” price of a financial instrument, close to the theoretical, model dictated values.