I've got an article up on TIME.com about "secular bear markets" and Graham and Buffett and stuff. It will hold no surprises for those versed in value-investor lore. But, in a sad commentary on our times, I'm told that many readers of the Internets are not versed in value-investor lore.

The basic message is that while this is a dangerous time to buy stocks, it's a lot less dangerous than, say, two months ago. Which sounds a little like Pudd'nhead Wilson: “October. This is one of the peculiarly dangerous months to speculate in stocks in. The others are July, January, September, April, November, May, March, June, December, August, and February.”

If that doesn't buck you up, maybe try singing along with the Facepalm Song (via Sad Guys on Trading Floors):

Commenter Linda S, who has an exasperating habit of asking questions that I don't really know the answers to, asks regarding credit default swaps:

I ... have read articles that suggest that these swaps not only give people an incentive to drive a company into bankruptcy but that it provides a huge incentive to make sure the company is liquidated and not allowed to restructure. I am more familiar with equity options than credit swaps. Although equity derivatives can provide incentives for speculators to do things that aren't beneficial for society as a whole, I don't think they create these kinds of incentives to cause bankruptcy and liquidation. Maybe this is a broader question about whether all derivatives are inherently evil or whether they can be tamed by good regulation or in other words should certain instruments be outright banned? If so, which ones and why?

Economists have been defending derivatives at least since Adam Smith's day. Here's what Smith had to say about corn futures in The Wealth of Nations:

No trade deserves more the full protection of the law, and no trade requires it so much; because no trade is so much exposed to popular odium.

Smith's argument was that futures trading helped balance the supply and demand of corn across different regions and over time--thus easing shortages and preventing famines. And that has continued to be the main theoretical argument for derivatives of all stripes. They allow for risks to be shared by different people across time. That, and they provide incentives for traders to dig up useful information, which should make markets more efficient.

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When I worked at Fortune I used to go down to Washington to talk to Alan Greenspan about once a year. I wasn't really trying to report on what the Fed was up to, so the conversations could range all over the place. I remember one very clearly in which Greenspan stated his opinions on the utility of regulation.

His view was that there really wasn't any. The rule of law was important--contracts had to be enforced. But beyond that, government intervention only messed up market incentives.

Today, Greenspan testified before Henry Waxman's House Oversight Committee. Among the many things he said was:

As much as I would prefer it otherwise, in this financial environment I see no choice but to require that all securitizers retain a meaningful part of the securities they issue. This will offset in part market deficiencies stemming from the failures of counterparty surveillance.

There are additional regulatory changes that this breakdown of the central pillar of competitive markets requires in order to return to stability, particularly in the areas of fraud, settlement, and securitization. It is important to remember, however, that whatever regulatory changes are made, they will pale in comparison to the change already evident in today's markets. Those markets for an indefinite future will be far more restrained than would any currently contemplated new regulatory regime.

Despite the caveats and backpedaling at the end, this statement represents a truly major change of heart. Greenspan had been an adherent of what can probably best be described as the Chicago view of regulation, as propounded by Aaron Director, George Stigler, Ronald Coase and a whole lotta other people who did time in Hyde Park. Freely negotiated contracts were all that was needed to make markets work fairly and efficiently. Regulations governing business behavior just got in the way. Alan Greenspan doesn't fully believe that any more. Do you?

Today's trivia fun fact comes from George Hofheimer of the Filene Research Institute. I was talking to him for this story about how credit unions have been faring amid the economic tumult, when I asked if his outfit was affiliated with the Credit Union National Association, a trade group. They're both on Mineral Point Road in Madison, I noted—pretty unlikely for there not to be a link. He laughed at my top-notch detective skill and explained that everyone who is anyone in credit unions is in Madison.

Back in the 1930s, when credit unions were just starting out, industry players were looking for a central location to plop down, and Madison, with its railroad, big land-grant university and ties to agriculture, seemed just right. Over the years, it became something of a stronghold. Now Madison is home to not only Filene and the CUNA, but also to the World Council of Credit Unions, the Credit Union Executives Society, and, of course, a whole mess of credit unions.

If you're at a dinner party and want to impress people with that knowledge, I won't be offended if I don't get credit for having pointed it out.

Barbara!

A reader writes:

I've asked brokers, finance wizards and total strangers to explain what the stock market does. Yes, I understand that when a business issues new shares, it gets capitalized. And when a business folds, shareholders get the (ha ha) liquidation dividend. I also acknowledge that there needs to be some sort of vehicle for buying and selling stocks. OK so far.

But once the stock is out in the market, why do people pay more or less for it? The universal answer is something like "If the company does well the stock is worth more." But why? For every buyer there is a seller, and one of them is making a gain while the other is taking a loss. The company doesn't participate. Isn't the trading of shares just a variant on the greater fool theory? Someone will pay me more than I paid. Once again, why? As long as the company's in business, not buying back shares and not merging, seems that all an investor can do is hope there's a greater fool.

The ongoing purpose of the stock market is to set the price at which companies are valued when they do decide to buy back shares, or issue new ones to make acquisitions or pay employees, or when they merge with other companies. And I think the reality (and even just the possibility) of buybacks and share issuance does place some bounds on the prices prevailing on the market.

To illustrate: In the early 1980s stocks were extremely cheap relative to earnings, so leveraged-buyout artists arose to take shares off the market using borrowed money. In the late 1990s stocks were extremely expensive relative to earnings, so lots of new companies went public and companies already on the market issued tons of new shares.

So those are the bounds. But there's an awful lot of greater-fool speculating--a.k.a. noise--going on between them. As finance guru Fischer Black put in his famous "Noise" speech in 1985:

[W]e might define an efficient market as one in which price is within a factor of 2 of value, i.e., the price is more than half of value and less than twice value. The factor of 2 is arbitrary, of course. Intuitively, though, it seems reasonable to me, in the light of sources of uncertainty about value and the strength of the forces tending to cause price to return to value. By this definition, I think almost all markets are efficient almost all of the time. ‘Almost all' means at least 90%.