I like your idea about a special court to adjudicate TBTF cases quickly and efficiently. However, there seems to be a conflict of interest situation similar to lawyers and workers at the SEC (i.e. they work at the SEC, get to know all the big shots on the Street, and then jump ship for more lucrative positions). How would you stop that?

But, I would advise that you can’t outsource all enforcement to the judicial branch out of practicality. Moreover, they too are subject to capture.

When I hear you speak of judges versus bureaucrats, it sounds more like the black and white of propaganda than the nuance of reality.

Theoretical free markets are ones in which hundreds of different operators act to buy and sell, none having any market power such that any excess profits are competed away by new entrants.

This is a fiction that has never nor ever will be. Moreover, even in the theoretical versions, there must be rules and regulations, laws and codes of conduct. Who is to enforce those? If you say, the market – then I would call that a naive belief in self-regulation. Criminal activity – failure to follow the market rules – must be enforced with the credible threat of punishment. Otherwise, the result is not free markets but anarchy. This is the point I made above.

As I assume you two are not anarchists, the question then becomes how much regulation of the market is required. After all, the regulator is imperfect and subject to capture. I am advocating for as little as can reasonably be used and still legitimately enforce the rule of law. Some are arguing for more. I am not.

The proponents of deregulation have made the exact same arguments. However, as practiced, the regulation was clearly insufficient, leading to excess and capture. Now, we need smarter and better regulation. We need to re-think the rules of the game. I am not advocating a super-set of regulations to tie us up in bureaucracy but a refinement and enforcement of the existing regulatory structure.

This is wholly consistent with free markets without a blind faith in market forces that leads to anarchy and cronyism.

You seek an ever more powerful government, run by ever more powerful regulators overseeing ever greater swaths of our lives and decision making, with the stipulation, of course, that those regulators share your ideals. But, I guess if that government, under future leadership, tried to exert that massive power in ways that you disapproved, they’d be Nazis. Well, I don’t trust your big government, and you shouldn’t trust mine because governments are just people and they are no more or less philanthropic than your average greedy American walking the street.

In response to my earlier post on another article, you wrote this: “Are you telling me that banks wouldn’t try to securitize liar loans if ‘market discipline’ held them in check. That is preposterous. The risk has been offloaded onto a third party. Again, this is why regulations exist.”

My response is, they would surely try if there was a buck to be made, but without implicit government backing behind a large swath of the US mortgage market, Fannie, Freddie, FHA, etc., the global buyers of those securitized loans would have been much more diligent. Without government subsidization of mortgage rates, and artificial suppression of interest rates by the federal reserve, it is unlikely that a housing bubble would have even been possible.

If you don’t believe that government intervention in the free market has been behind the serial bubbles we have seen in recent decades, has encouraged the greed and risk taking, I’m probably wasting my time here. So here’s my last word. The current administration, their spending policies, monetary policy, and housing policy, are in the process of creating the next (and greatest) bubble right now. You can line up powerful regulators from here to timbuktoo and they won’t prevent this whole thing from happening again and it will crash in a more spectacular fashion. Bigger government is the problem, not the answer.

http://www.counterpunch.org/roberts10162009.html

Greed, as discussed here by Ed, is objectively gravely sinful. I’ll leave it to the imagination of the reader as to whether what Roberts describes meets that definition.

There is a big difference between law and regulation. The law is enforced by judges. Regulations are enforced by bureaucrats. The incentive structures behind each are completely different.

We have laws against fraud, misrepresentation, misappropriation in addition to anti-trust laws. We need them to be enforced in order for the market to be “free.”

I understand the distaste with notions of “perfect competition” and rational actors. There will always be a business cycle. But to contend that some actors can better ‘regulate’ the market than others commits the same errors that collectivist ideologues make when suggesting their omniscient central planners are perfect. The regulators you claim we need are susceptible to the same irrationality which they are supposedly regulating. You document this regularly.

It seems that you, like so many others, are incapable of distinguishing between the effects of corporatism and capitalism.

You ask rhetorically if market discipline would prevent things like predatory lending and excessive leverage. The answer, as you provide, is quite obviously “no.”

But in a free market, fractional reserve banking doesn’t exist as it is an institution owing its existence to government and central bank decree. Leverage and predatory lending cannot exist without fractional reserve.

One cannot use manifestations of government central planning as a legitimate argument against free markets. It boggles the mind that intelligent people such as yourself can continually fail to decipher between the two.