[FoRK] The Looter's War on Selfishness

J. Andrew Rogers andrew at ceruleansystems.com
Wed Mar 25 11:27:39 PDT 2009


On Mar 23, 2009, at 4:15 PM, Stephen D. Williams wrote:
> Clearly, I meant that banking and investment have, in the area of  
> CDS and similar instruments, been effectively unregulated.


The CDS instruments were largely unregulated (as such things go), but  
no one credible seems to be saying that this was the cause of any  
problems.  In fact, most of the suggestions for useful regulation seem  
to revolve around establishing a more standardized, central  
clearinghouse for CDS transactions. The problem is not credit default  
swaps per se, or any lack of regulation of such instruments, but the  
fact that so many of them were tied to fraudulent Fannie and Freddie  
mortgage debt instruments.

Speaking of the devil, I just saw this journal abstract:

"Guilty by Association? Regulating Credit Default Swaps"

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1368026


> The fact is that AIG, because it had acquired a little thrift a few  
> years ago, was able to end up regulated by an agency with a single  
> person doing relevant oversight.  That hardly sounds like too much  
> regulation.


This is specious reasoning dripping with non sequitur.  How do you  
think regulation normally works?

Furthermore, few people seem to be making the claim that AIG was  
engaged wholesale violation of regulations, so I am not sure why this  
point even matters.  To the extent that the problem was regulatory, it  
is because the *regulations* were bad and the financial institutions  
operated according to those regulatory rules, with regulators showing  
no particular interest in investigating the obvious weaknesses in the  
existing rules even when pointed out by those being regulated.


> I _want_ boom-bust cycles for technology, and to some extent  
> cultural, rebirth and creative turnover.  Reverse economy of scale  
> is great when it allows just-in-time viability of new, better  
> ideas.  It is when there is land grab or pyramid or monopoly or some  
> other sickness in the market that I get uncomfortable.  Those are  
> not healthy, even if they naturally occur.


This is not an internally consistent argument, and one man's "creative  
turnover" is another man's "sickness in the market".  If you were  
stricter about how you were analyzing this, you would realize that  
what you really want is for Maxwell's Demon to violate the 2nd Law of  
Thermodynamics, which falls under the broader umbrella of "wishful  
thinking".


> These seem to happen more often with haphazard deregulation than  
> over regulation, however I can see it both ways.  Transportation  
> (shipping particularly), telephone, and cell service were all over  
> regulated for far too long, for instance.  Those are not healthy,  
> even if they naturally occur.  Sometimes it seems that perverse  
> incentives abound, caused by more than poor regulation.


You have to take the good with the bad.  The decreased transaction  
latency and massively increased flow of information and technology is  
accelerating many of the "good" things, but it is also increasing the  
sensitivity of the markets to differences in information latency and  
distribution.  Those are inherently inseparable consequences for all  
practical purposes.

There is no model of reality that allows a "just so" organization of  
an economy that is all rainbows and ponies. Denial of the real  
tradeoffs does not make them go away even though this is the full-time  
job of Congress it seems.

Cheers,

J. Andrew Rogers



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