Challenge for the Brazilian market is to stop selling pineapples

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Lemons earned economist George Akerloff a Nobel Prize, and may have a relationship with the subprime market, our stock market and the Brazilian judiciary. In the United States, lemons are poor quality used cars, and in Brazil, the expression could be better translated as “pineapples”. The owner of the car is the only one who knows about the problems with the pineapple in question, and will try to sell it for the price of a good car. Potential buyers, worried about not being deceived, will demand a good discount for a used car. A seller of a used car in good condition will not get a fair price, and will prefer not to sell the car. In the end, only bad cars remain on the market. The credit market also has its pineapples.

Mortgages of borrowers with bad credit history were transformed into good mortgages using the magic of derivative instruments. Funds with these securities had astonishing profitability associated with a risk Phone Number List that was wrongly perceived as low. The extent of the subprime crisis is related to the expulsion of good quality funds from the market. Financial pineapples created the subprime bubble. But wouldn't this be a problem for Brazil, after all, hasn't our economy “detached” from the world market? Here, the signs so far are that the stock market's rise is taking place on solid foundations. Years and years of macroeconomic imbalances have caused companies to be undervalued, and prices have only reacted to the recent period of stability.



The challenge is to prevent that, from now on, the financial market starts to package our own pineapples, selling a car that is worthless as good. This possibility can be seen in the financial information released by companies this year. The season for publishing balance sheets for public companies in ended at the end of March. Among other information, these documents must inform how much of the companies' resources are committed to legal actions, both in the short term and in the long term — these are called provisions . This information is important for stock investors to assess the risks they are taking — to give you an idea, the amounts provisioned by the largest publicly traded companies in the now distant year of (the last careful survey available) amounts to R$ billion.