> -----Original Message----- > From: brin-l-boun...@mccmedia.com [mailto:brin-l-boun...@mccmedia.com] On > Behalf Of John Williams > Sent: Saturday, July 18, 2009 12:41 AM > To: Killer Bs (David Brin et al) Discussion > Subject: Re: Why not discuss the topic? > > > No chutzpah required, since I am convinced that the recession is > largely the result of unforeseen consequences of imperfectly > understood regulations and interactions between them, of people and > businesses finding ways to game regulations, and of wrong-headed > government bailouts of people and businesses who would have lost money > in a free market which would disincentivize such behavior in the > future, but instead the bailouts incentivize such things.
OK, I'll bite. We know that the financial crisis can be traced to things like the use of the VAR model and credit default swaps to the tune of 45 trillion dollars. A system was set up that was based on the assumption that a model that cuts off the low probability tale would be perfectly adequate. If financial risks/rewards followed the normal Gaussian distribution, that would be true. The VAR would allow one to skate very close to the edge, running highly leveraged investments, with virtually no risk. But, we know that, historically, black swans have been a key part of both true financial growth and financial collapses. One might reasonably argue that credit default swaps were a clever way to have high leverage without technically violating the laws that limit bank leverage. But, the collapse was due to the overwhelming leverage itself. Your argument would be valid if and only if leverage would stop causing problems if only the government didn't try to stop it. But, of course, there are countless examples of leveraged bubbles bursting in areas that governments had not regulated, so one would need to show how government regulations where they didn't regulate caused it. Your writings are consistent with the viewpoint of one who knows government is the root cause of all that is wrong a priori, and needs not look at data to look at the truth. Dan M. _______________________________________________ http://mccmedia.com/mailman/listinfo/brin-l_mccmedia.com
