Comments on: Deregulation as crony capitalism

By: Anonymous

Anonymous — Mon, 28 Dec 2009 15:32:00 +0000

Well I wouldn’t put my hopes in the regulators Edward. The regulators are not the answer as it is already obvious. Securities Ratings Agencies, which there is three of them, rated this bad financial instruments as AAA. Also, overleveraging was promoted by Basel Accords, internationally, and leverage increased systematically over the years. Of course the entire global economy was overleveraged. Full reserve banking is the solution. Fractional reserves are well liked by the inflationist who believe they are God with the economy.

By: Anonymous

Anonymous — Mon, 28 Dec 2009 14:48:00 +0000

Well actually, despite being an anarchist I have to support the Glass-Steagall regulation. Here is why. Fractional reserve banking system embezzles money, and have a lot of government support such as FDIC, and Fannie Mae & Freddie for example. There is no free market in the banking system for the simple reason that there is no free market forces to keep banking running optimally against risk. Just like the natural law of gravity. People don’t jump off of 4 story buildings, because they know they can die. If not, then it’s a miracle. Free market operates very much similar way. Bankers need to understand that failure is an option, and excess risk is not rewarded. I don’t believe in a mixed economy, because mixed economy is distortionary for the market players. Nobody cares about their money when they desposit into these fractional institutions. They believe they always get their money back, because of the FDIC, and government gurantees. Fannie, and Freddie, with these fancy financial instruments made it easy for Wall Street to sell with government guarantees. Relaxed lending standards was a result of failure not being a concern. Banks knew they will get bailed out if they got in trouble, so they didn’t really care about risk. In a free market, where the public is concerned about their business with their bank on a intimate level, whether depositing money, risk assessment, capitalizations, etc, you have banks having to please their customers, or you can get a bank run, or something in that nature. Bankers would be managing risk, and their reputation much better, but when you remove risk, you are inviting disaster. If you are going to deregulate banking, it has to be 100%, not 50%, or if not, don’t deregulate at all. Personally, I rather have the government abolish fractional reserve banking, and only allow full reserve banking, but the inflationist don’t like this.

By: Jules

Jules — Wed, 23 Dec 2009 22:51:00 +0000

As Reagan said, “trust, but verify.”

By: The recession is over but the depression has just begun | The Big Picture

The recession is over but the depression has just begun | The Big Picture — Fri, 18 Dec 2009 22:28:57 +0000

[...] Theory and you will see why), the 1980s-2000 was not really an era of ‘free markets.’ I call it deregulation as crony capitalism. What this has meant in practice is that the well-connected, particularly in the financial [...]

By: Obama’s populist rhetoric about ‘Fat Cat’ bankers | The Big Picture

Mon, 14 Dec 2009 20:29:24 +0000

[...] differently because of the political process and the power of lobbyists. It is what I have termed deregulation as crony capitalism. What the Obama Administration is doing has nothing to do with socialism; those who believe that [...]

By: Anonymous

Anonymous — Fri, 11 Sep 2009 09:26:00 +0000

I write on corruption, which is my favourite research topic as a geographer; I wish I could tell you how many times I’ve written on the myth of the free market, and made exactly the points you make here, but coming at the topic from a different point of view. One particular theme you might like to look at is the actor-network theory of financial services corruption, which I have an article coming out on soon.

By: Edward Harrison

Edward Harrison — Thu, 27 Aug 2009 05:29:00 +0000

Wap the dog, I agree with your sentiments. There’s no sense in having a
regulation unless you put teeth into the regulation behind it. I have said
before that we don’t need a whole new set of regulations until we start
actually enforcing the existing ones. There are laws on the books to
prevent predatory lending. There were rules in place to stop excessive
leverage. There were procedures in place to end risky lending.

But regulators felt ‘a light touch’ was the right approach. Now we see the
folly in that.

By: Wag the Dog

Wag the Dog — Sun, 23 Aug 2009 09:38:00 +0000

There is still the open question of where to draw the line though. Obviously one cannot deregulate completely and leave nothing for the regulatory body to actually apply any oversight. The problem is that regulations without oversight becomes a deception for those market players not fortunate enough to possess the connections that would allow them to see what is really going on. Small investors get fooled into thinking they are buying financial products that meet some minimal standard set and enforced by a governmental body, when really they’ve been conned into buying financial instruments that will blow up in their face because the minimum standards are a lie. It is better to remove any regulation for which there is no corresponding enforcement body that has the required teeth. This way the smaller players can see what they’re getting up front. However I doubt that a perfect matching of deregulation and oversight (assuming consensus for such an agreement is even possible) will be able to prevent huge swinging boom/bust cycles entirely — regulatory bodies are no more the all knowing oracles, reflecting all information available to market participants, than the free market is.

By: doctorx

doctorx — Fri, 21 Aug 2009 15:51:00 +0000

Thanks for your kind comments, Ed.

Please call me Larry.

By: Edward Harrison

Edward Harrison — Fri, 21 Aug 2009 14:21:00 +0000

Thanks DoctoRx, I have immense respect for your views. I know about your disagreement on the Glass-Steagall thing. I would say that it is one way to go that is not objectionable. But, there are many ways to skin a cat.

Expect a follow-up to this at some point.

By: doctorx

doctorx — Fri, 21 Aug 2009 05:01:00 +0000

Well done!

The long form posts such as this IMO should be used more often. It gives you and other bloggers a chance to be heard with more subtlety.

You and I happen to disagree re investment banking and commercial banking being separate, but I agree with virtually everything else you said here.