[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"
> 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
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
> 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
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.
J. Andrew Rogers
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