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Is free market capitalism dead in UK?
Is free market capitalism in the United States actually practiced even today is alive or It now only a product of our imagination?
Let's analyze the facts and see for ourselves.
Americans have traditionally believed that the "invisible Hand of the market "means that capitalism will benefit us all without any supervision. However, the man (ie Adam Smith), who was not the idea of the invisible hand in a magical benevolent market that operates without the benefit of all believe in checks and balances:
Smith railed against monopolies and the political influence that the economic Power accompanied …
Smith was concerned about the encroachment of government on economic activity, but his concerns at least as much to parish councils, Church wardens, big corporations, guilds and religious institutions, the National Director Government and these institutions were part of the 18th Century, government …
Smith was sometimes tolerant of government intervention, "especially when the object of reducing poverty. Smith passionately argued,''If the regulation is therefore in support of the workers, it is always right and proper, but it is sometimes otherwise when in favor of the Masters.''He saw a tacit conspiracy by the Arbeitgeber''immer überall''zu and wages as low as possible.
Yes …. Adam Smith may have been the Father of free market economy, but he argued that the regulation of banks was as necessary as fire codes, municipal buildings, and called for a ban on high Risk and high-interest loans from the 18th Century version of subprime.
Now comes from one of the leaders of the new science of the Financial Modelling – Rama Cont – Who points out that Adam Smith wrong about the "Invisible Hand was. In particular, investors in financial markets can pursue rational individual profit results which are bad to produce for almost everyone.
Simple forecasts can be wrong even if they fail to change the actions of market participants themselves: Investor strategies can affect prices, which in turn can affect future strategies in a feedback loop to cause considerable instability.
Cont recalls the severe stock market crash of October 1987, which seemed to strike out of the blue, there was nothing significant is happening in real economy. Subsequent research, but blamed the crash in part on a new investment strategy, "Portfolio Insurance", which had adopted a large number of fund managers simultaneously.
Based on the famous Black-Scholes option pricing model recommended that this strategy is that fund managers reduce their risks by automatically selling shares when their Values fell. But the approach does not take into account what would happen if he was followed by many investors simultaneously: a massive sell-off, which could send the market rapidly.
The crash of 1987 was not provoked by the events in the real economy, but by a supposedly smart risk management strategy and the current Downturn of course also runs at least partly by a global hype for a seemingly foolproof financial innovation …
Investors in financial markets, rational pursue individual profit, then the results that are global to produce negative. Does not that contradict classical economic theory? "Both theory and empirical facts tend to show that the financial markets, the "invisible hand" does not always lead to prosperity, improving education outcomes " Cont answers.
Does this mean that free market capitalism is dead?
No, but for the same reason, I'm not sure that there is no better Alternative.
Bottom line:
We at Blackhawk firmly believes that capitalism has to be mature and less naive, relying less to a blind faith in the "invisible hand" and more to the understanding of human nature, including insights from the field of Behavioral Economics.
It has sophisticated checks and balances to ensure that the system is not gamed rather childish ideas about the "inherent stability" of the market.
And they must ensure that the poker game does not end suddenly when one player gets all the chips.
Of course, with high-frequency trading dominate the market, front running, permanently bailouts, government-sponsored credit rating fraud and companies that create and maintain the government of banks as large, that their very size, the entire system, socialism for the big guys distortions, and all the other tricks goes, it is clear that we are no free market economy. It is clear that the invisible hand can not work if the government binds it.
What do you say?
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About the Author
Ziad K. Abdelnour is a dealmaker, trader and financier with over 20 year experience in merchant banking, private equity, alternative investments and physical commodities trading. Mr. Abdelnour has been a trusted advisor to a number of the largest family offices in the United States, Europe and the Middle East and a turnaround investor in a number of companies where Mr. Abdelnour’s corporate capital commitment through Blackhawk came either through acquiring those and other companies through their distressed debt or through the chapter 11 process.
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