[FoRK] The Wrecking Crew - A Low, Dishonest Decade

Stephen Williams sdw at lig.net
Tue Jan 19 18:29:21 PST 2010


Jeff Bone wrote:
>
> Too many good comments to reply to many of them individually;  I'll 
> just make a couple of points.  Reading through them, I notice several 
> instances in which folks are reading what they want to see me say into 
> what I'm actually saying, and in doing so they're revealing a lack of 
> understanding of the existing macro structure and function of various 
> financial markets.  Not to pick on Stephen out of spite, but just as 
> an example:
>
> Stephen says (quoting me to lead give context)...
>
>>> It's only where the "market did not have such characteristics and 
>>> mechanisms that the failures really mounted to create systemic risks.
>>
>> Exactly right! Unfortunately, many crave stability and 
>> predictability. Sometimes the definite loser pool (existing 
>> shareholders for instance) win out over the potential (and mostly 
>> unknown and unidentified) winners. This affects regulation of markets 
>> and preference for gov. / commercial choices. This is probably a good 
>> balancing force, however it can lead the wrong way and shouldn't rule.
>
> Unfortunately, Stephen is misunderstanding something very fundamental, 
> which is the relationship between the "characteristics and mechanisms" 
> mentioned, government regulation, and the impact on government 
> regulation on which markets suffered the worst (and why.)
>
> I'm glad that Stephen "agrees" with me but unfortunately his next 
> statements make it clear he's not sure what he's agreeing with.  ;-)
>
> It's not government oversight or regulatory risk limitations that 
> impart predictability and stability;  it's a well-organized, well-run, 
> highly credit- and risk-aware market.
>
> ...
> My endorsement of regulation is not an endorsement of what Stephen 
> appears to believe regulation should attempt to achieve:  in 
> particular, regulation's "affects" [sic] should not be to influence 
> any particular pool of winners and losers, or to prevent losers from 
> suffering the consequences, or to prevent willing participants from 
> engaging in whatever transactions they desire, or to "engineer" any 
> particular outcomes by levies and taxes.  Maintaining some level of 
> volume, volatility, price stability, etc. is *not* a legitimate aim of 
> such things, and the uninformed shouldn't play at games they don't 
> understand.  Caveat emptor.

Perhaps my bias is preventing me from understanding how your bias 
results in that reading.  However I think you have completely 
misinterpreted what I said.  Apparently I should have been more clear.  
I agreed, then prefaced everything else I said with "unfortunately" to 
signal a summarization of some of what takes markets in another 
direction than what we were agreeing to.  You further indicate that you 
are parsing this in a way not intended since you mark "affects" as 
somehow wrong, even though it has exactly the meaning I meant: Existing 
shareholders, craving stability to protect their investment, affect the 
type and degree of regulation of markets / preferences.  The 
legislatures effect said regulation to appease those shareholders since 
the potential challengers of the status quo have little ability to have 
a competing affect.  I am not endorsing that as a valid goal, but 
expressing a view of why it (unfortunately) happens.  And I reasonably 
end with a hedge that counterbalancing forces are often a net good, even 
if they can "lead the wrong way and shouldn't rule".  The gist was that 
they should be a minor countervailing force.

Thanks for the education on forex markets, interesting.
>
> Instead, my endorsement is really merely one of well-organized markets 
> --- and that doesn't *require* government intervention in all cases, 
> as we see with foreign exchange as a shining existence proof and case 
> study.  And indeed, quite often it's the case that politicians --- 
> most of whom have no clue how any of this works --- create more damage 
> than they mitigate through regulating from a position of total ignorance.

If we had to have government intervention in every aspect of living and 
working to get people to do the right thing, we'd never get anything 
done.  It is only for when people refuse to or are unable to make the 
right choices consistently that we need such help.  On the other hand, 
some operate on the principle that anything that isn't explicitly 
forbidden (in a way that you could get caught easily) is allowed.
>
> However, in markets that fail to appropriately self-organize to manage 
> their own systemic risks, legal coercion and enforcement may be 
> required to get the participants to adopt what should be some 
> otherwise quite commonsense and mutually beneficial processes and 
> mechanisms.  To figure out what those might be, we need look no 
> further than those markets which *functioned well* through the recent 
> (and, I would argue, ongoing) unpleasantness.

"Self-organize or we'll do it for you" is not a bad principle.  
Conversely, "self-organize better and we'll stop doing it for you" ought 
to be possible.  I'm sure that's the sell for deregulation, however it 
has to have a metric or it is just a gateway to devolution.
>
> If only the policy-makers were smart enough to do so.  (And the 
> armchair pundits, really, should STFU until they have a bit better 
> understanding of what actually happened, much less why.  IMHO. ;-)
>
> $0.02,
>
>
>
> jb

sdw



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