Re: [tlug][OT] Free markets

[Edward Middleton <emiddleton@example.com>]

Stephen J. Turnbull wrote:
> Edward Middleton writes:
>
>  > Because when the markets screw the pouch[1] we all end up in the ...
>
> That's pretty ungrateful of you; without markets you'd be scratching
> dirt for nuts and berries.

I wasn't arguing that markets aren't essential.  Though I don't know
what you have against collecting nuts and berries, its an honest living ;)

> Not to mention that the biggest crises of
> the last century were all due to *government* snafus (huge monetary
> *contraction* in 1929-1932, a regulatory regime that protects
> borrowers against loss while allowing banks to escape via bankruptcy
> in the S&L crises in the US and Japan, Congress pushing hard to get
> industry to lend to subprime borrowers in the current mess).  It's not
> clear that *any* of them would have happened if the market had been
> left to its own devices.
>   

What about the current one?  Clearly making credit available to people
with no capacity to repay it was ridiculous but would we be in the
situation we are now if such CDO's[1] had been treated as the junk level
investment they have proven to be?

I am not arguing that inappropriate regulation (which unfortunately
seems to be the only thing on offer) would solve any of these problems. 
Conversely it isn't clear (at least to me) that less regulation would
have averted the current situation.

>  > To believe higher standards would be achieved with little or no
>  > oversight seems to be demonstratively flawed.
>
> Curt gave the example of the New York Stock Exchange.

Is the NYSE not regulated? does the SEC not hold oversight?  What about
the CDS marketplace which George Soros described as "a totally
unregulated market"[1].

>   I haven't
> noticed any great outcry for "oversight" of purity of materials in the
> semiconductor market.

We do however expect oversight of people in the Engineering professions,
usually at a level appropriate to the degree with which their actions
may cause harm.

> Etc.  Nor is it clear that higher standards
> *can* be achieved, eg, in eBay or the used car market.  Let alone the
> market for illegal drugs.  Or water purifiers and consumer credit
> (keikaku-teki ni riyou shimashou! -- like somebody capable of planning
> a birthday party would need to borrow at 55% annually, ever...) in
> this country.
>
> And then there's the oversight that is performed by the Japanese
> ministries with respect to domestic producers.  Quis custodiat ipsos
> custodes, eh?  To believe that greater oversight can be achieved with
> little or no cost seems to be demonstratively flawed....
>   

Yes it is depressing and more of the wrong sort of oversight is probably
what they have in store for us, which is a good argument for markets to
adequately self regulate.

Edward

1. http://en.wikipedia.org/wiki/Collateralized_debt_obligation
2.
http://www.thedeal.com/dealscape/2008/04/soros_credit_default_swaps_are.php