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Milton J. Madison - An American Refugee Now Living in China, Where Liberty is Ascending

Federalism, Free Markets and the Liberty To Let One's Mind Wander. I Am Very Worried About the Fate of Liberty in the USA, Where Government is Taking people's Lives ____________________________________________________________________________________________ "Extremism in defense of liberty is no vice. Tolerance in the face of tyranny is no virtue." -Barry Goldwater-

Thursday, October 02, 2008

Crisis of Capitalism or Crisis of Regulation......

I am always amazed listening to left-wing clowns yapping on TV that this financial crisis was a failure of not enough regulation. Banking is one of the most highly regulated businesses on the face of the planet. And yet, failures are happening not just in the US but also in Europe where 5 banks have failed so far this week and were forced to seek government assistance. So, by definition, bank failures in Europe cannot be the fault of American regulation since they are not regulated by Americans. So, when Pelosi bloviated that this banking crisis was the result of the Bush Administration's 'anything goes attitude' then how can that 'anything goes attitude' by the Bush Administration apply to the 5 banks that failed this week in Europe and the ones like Northern Rock and a handful of unpronounceable German banks last fall that also failed?

Could it be that regulation is just a fundamentally flawed concept that cannot effectively do what governments claim can be done. Could it just be that regulation by government is also tainted by politicians that effect social policy through the backdoor of regulation and foist either/or costs or benefits on a select few at the cost of the many? It sure seems that as information dribbles out on the root causes of this most recent crisis that it is exactly misguided social action on encouraging the needy to buy homes as one of the roots of this crisis.

Also, do we want these politicians regulating something that they know so little about? The largely unregulated hedge fund industry, despite having multitudes of risks embedded in their existential DNA have weathered the storm pretty well up to this point. So, why is the unregulated handling this while the highly regulated not doing so well? It could be several factors, including but not limited to:
1. Hedge fund managers get paid exorbitantly well when they are successful and make nothing when they are not. This is a huge incentive towards ultimate success.
2. Investors in hedge funds live in a world of caveat emptor and have to be sure that the strategies employed by these funds is sensible and there is an internal policing mechanism that keeps the wheels on the track.
3. Investors know that there is no government protection (no moral hazard issues) so they are extra diligent on making both the initial investment and also pulling their money out when the strategy doesn't make sense anymore.
4. Money moves to new strategies to take advantage of opportunities according to the market and is not led or limited by outside regulatory or government interference.
Hedge funds are true capitalism and banks are not. So, in my humble opinion, governments and regulation have again proved that they are incapable of operating socialist economic policy effectively or efficiently.


At 10:37 AM, Anonymous Anonymous said...

Keep on trusting corporate America to do the right thing ahead of their personal greed. Keep trusting them to be forthright and honest days before going under with your money. Keep trusting them to not take millions for themselves while losing millions of yours. Less regulation? - are you kidding me? When will you learn that these top ceo's can never get enough at investors expense. How do you justify performance bonuses for driving a company into the ground? Their only legit defense so far is stupidity is not a crime. You're an idiot on this one.

At 2:30 PM, Blogger glenzo said...

You comment here truly mystifies me.

You do not have to trust corporate CEO's. If you do not then you can sell the shares of those companies and buy the shares of companies of CEO's that you like.

If you are arguing that government can do a better job of regulating an economy, then I give you the fine example of Russia. Were they better of in the heady days of Stalinism?

Capitalism isn't perfect. But we have in the US is not capitalism. It is socialism with a capitalist twist.

Remember that the US government spend $2.7 trillion of your money last year. Do you really think that you got value for that expenditure?

And also, thank you for calling me an idiot. So, I have an excuse for my position. Do you have an excuse for yours?


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