[FoRK] Do You Belong to The Church?

J. Andrew Rogers andrew at ceruleansystems.com
Wed May 5 17:52:24 PDT 2010


On May 5, 2010, at 4:45 PM, Ken Ganshirt @ Yahoo wrote:
> --- On Wed, 5/5/10, Joe Fish <reverend.joe at gmail.com> wrote:
>> For my own part, I remember at least two deregulation-ary free-market
>> crazes: the S&L's in the 80's, and the current CDO/CDS mess.
>> 
>> And yet, every republican-cum-free-marketeer i speak to about the
>> current mess (and the other one I can remember) always seems to think
>> the source of the problem just HAD to be that we didn't deregulate
>> ENOUGH.
>> 
> 
> In Canada we have less financial regulation, or at least simpler regulation, but serious enforcement rather than lip service.


Simple, strict regulation is roughly ideal both for stability and efficiency. The US uses the "epicycle" model of financial regulation.

Most people who think the US financial system suffers from "deregulation" are ignorant of just how heavily regulated many of these things already are -- many aspects of the US financial system are hyper-regulated by any reasonable metric. The popular trend is to deem *mal-regulation* to be "deregulation" simply because adverse consequences happened, a conflation primarily used for propaganda purposes.  More often than not, in the US financial system the root cause comes down to incompetent and/or corrupt regulators.

There is a lot of literature from long before this crisis that suggested most complex and opaque derivatives are created as direct consequence of messy, poorly designed regulation (too lazy to Google and cite). If you create a Byzantine and incoherent set of badly designed regulations and force everyone to abide by them no matter what the predictable (or unpredictable) consequences, bad things happen. The uglier the set of equations you have to balance, the more exotic the tools you have to invent to keep it manageable.

In these cases, there is a legitimate argument that true deregulation would produce more real stability and transparency than simply adding more regulation to the already excessive pile. Simple, strict rules are the way to go but politicians do love their shenanigans.






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