On Sep 14, 2009, at 11:29 AM, John Williams wrote:
On Mon, Sep 14, 2009 at 7:41 AM, Bruce Bostwick
<lihan161...@sbcglobal.net> wrote:
I think you're oversimplifying the arguments for regulation. I don't
believe anyone involved in the process seriously believes
regulation is a
one-dimensional parameter,
I think you give politicians far too much credit. I have no doubt that
quite a few politicians do not put any more thought into regulation
than "more", and "I have to make it look like I am doing something".
In some cases, you may be right. In others, not s0 much.
The measures that were most effective in the past year or so in
terms of
containing progressive collapse
Which measures would that be, and how do you know they were beneficial
in the way you claim?
I believe an answer of sorts can be found in the portion of that quote
you trimmed out.
The rest of the answer is that the Federal Reserve stepped in and put
the brakes on the ridiculously overleveraged derivative trading that
was going on, injected some strategically placed capital into the
firms that had the collateral and other fundamentals to support it,
let the ones that were too unsupported to survive fail with those
firewalls in place to contain the damage, and essentially turned the
market entirely around or at least kept it from falling a lot farther
than it did.
It's worth noting, too, that those injections of capital were loans,
the bulk of which are already in the process of being paid back.
one which, when left
completely alone, tends to evolve toward increasing instability and
ultimately just the kind of collapse we saw a year ago.
That is what the politicians constantly claim. The reality of the
matter is that no one really knows whether there would have been a
"collapse". In fact, it may well be regulations and unintended
consequences of regulations that made things worse than they might
have been.
I think it was fairly obvious at the time, then, and is even more so
now, that there wasn't enough reserve capital in the system to avoid a
progressive collapse of the entire system, there was an entire
derivative market sector that was effectively completely unregulated
because no one had thought to regulate that particular kind of
trading, and there was a circular scheme of reinsurance backing up the
trading on paper but no actual underwriting of any risk. Those sorts
of shenanigans are more or less to be expected in the complete absence
of any sort of regulation.
Yes, if you wire all the safety valves on the boiler shut and stoke up
the fire until the rivets are popping, something's going to blow
somewhere. I think that's pretty clear even to a layman like me.
And I believe we've had this argument before, and others more eloquent
than I am have deconstructed your side of it in detail.
The fact that regulations designed to enforce a
certain degree of stability and the presence of certain fail-safes
in the
system that prevent progressive collapse when rogue players do play
fast and
loose is not a one-dimensional parameter at all, it's inherent in
the nature
of the regulations that are, in fact, necessary to protect the
market system
as a whole from the risky behavior of the people it's composed of.
Just because regulations are "designed" to do something does not mean
that people will behave as the designers expected. In fact, it is
often the opposite. People devote a lot of energy trying to find flaws
in the regulations so that they can do what they wanted to in the
first place. And find flaws they do.
I believe that's the only rational assumption around which to design
any regulatory strategy. One of the assumptions is that the
regulation must evolve with the market and take exactly that sort of
gaming the system into account.
At this point I have to ask exactly what your concept of regulation
*is*, because it seems to be very different from mine.
Never forget that you're dealing with a system made up of the
collective
behavior of millions of individual human beings,
And the corollary: governments are made up of the collective behavior
of many politicians and technocrats whose sole motivation is to gain
more power and to hold on to more power.
I don't think I ever assumed otherwise. But our government, unlike
the leadership of publicly owned corporations, has a (mostly, sort of)
working system of checks and balances to at least theoretically make
it difficult to use elected offices to gather power for power's sake.
It isn't perfect, but it tends to preserve at least something of a
balance of power. The few legally required structural measures in
corporate leadership intended to prevent that are far less effective.
_______________________________________________
http://mccmedia.com/mailman/listinfo/brin-l_mccmedia.com
