FEEDBACK PEDANTRY….Vikas Bajaj of the New York Times explains the financial crisis:
The technical term for it is “negative feedback loop.” The rest of us just call it a panic.
I know that a lot of people use this term during a crash because “negative” is the same thing as “down,” but I don’t think this is right. It’s a positive feedback loop he’s talking about, where every action in a particular direction feeds back to cause even greater action in the same direction. In a bubble, it means that the market going up causes buyers to get ever more excited, causing the market to go up even more. In a panic, it means that the market going down causes sellers to get ever more hysterical, causing the market to go down even more. It’s bad news in both directions, and it’s a positive feedback loop whether that direction is up or down.
Unless, of course, this is some kind of weird term of art in the finance biz. Which would probably serve me right. Anyone know?