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

Bill Stoddard wgstoddard at gmail.com
Wed Jan 20 12:01:54 PST 2010


On 1/19/10 9:45 PM, Jeff Bone wrote:
>
> So, final conclusions:  *government* regulation and moral hazard are 
> two sides of the same coin, and that has to be managed very carefully 
> by policy makers and would-be regulators.  There's a role for the 
> government regulation, but beware the possible moral hazards that 
> usually go along with it (and other unintended consequences as well.)  
> And --- self-regulation via social norms, peer pressure, clearly 
> articulated ethics and practices, and self-interest *can* (but do not 
> always, or even necessarily usually) accomplish the same desired goals 
> that progressives might seek (but often fail to achieve) through 
> greater, coercive government regulation;   cf. the FX market as 
> existence proof.
>
Correct, but completely useless, conclusion.  Government regulation is a 
simple fact of life.  We can work to reduce it but it will always exist 
and pretending otherwise is just pie in the sky idealism.  One of the 
recent problems is that wall street was willfully ignorant (maybe 
willfully negligent) in managing the obvious risk presented by 
cheap/free credit underwritten by the Fed.  The free money party HAD to 
end (and in predictable ways) and the risk management wonks in the 
ibanker shops clearly understood this.  Those risk managers were 
ignored.  Twisted analogy... if i leave my front door unlocked, is it my 
fault if a crook comes in, terrorizes my family and takes everything I 
own?  The Fed 'left the door unlocked', foolishly imho, yet that does 
not justify the equally foolish (greedy?) decisions of the real perps.

moral hazard... LTCM set the stage for the meltdown.  LTCM blew up 
because some smart Nobel prize winners miscalculated how interconnected 
worldwide markets are. I don't recall whether specific government 
regulation contributed to the LTCM debacle, but I do know political 
interests were endangered by the blowup, so LTCM (or their creditors) 
were bailed out, creating the mother of all moral hazards... at least up 
until now.

Wishing away all government regulation is just as senseless as 'from 
each according to his ability to each according to his need'.  Same 
crack pipe, different day and all that...

One point where we probably agree... the backlash regulation will 
probably hurt more than help. In fact, I'd wager a bet that MOST 
regulation that exists today has been so influenced by lobbiests that it 
actually benefits the interests with the deepest pockets. THAT's the 
real danger of regulation.. that it doesn't serve a just & common 
cause.  Any regulation that arises from the current meltdown is likely 
to contain, by design, easily game-able aspects.  Watch and see.

Bill
>
> jb
>
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