tag:blogger.com,1999:blog-22031270.post1113096978056123059..comments2023-11-03T19:05:08.512+11:00Comments on Harry Clarke: The end of free market fundamentalism not of the mixed economyUnknownnoreply@blogger.comBlogger9125tag:blogger.com,1999:blog-22031270.post-85880342772490246702008-10-28T00:01:00.000+11:002008-10-28T00:01:00.000+11:00As Sinclair said, there is a lot in here that does...As Sinclair said, there is a lot in here that does makes some sense of what is going on at the moment. However, one of the faults of those that are calling for more regulation - almost invariably those of the "government is always the answer" ilk - is that they assume that the current situation is a result of the anarcho-capitalist policies that Sinclair refers to. My understanding of this concept is that this refers to a complete absence of regulation - i.e. unregulation. Such a characterisation of markets is immature and misguided. Markets have always relied on the coercive power of the state to function - even Adam Smith and Milton Friedman acknowledge that markets can only operate where agreements can be expected to be enforced and rights created under those agreements be recognised. In other words, at a minimum, an equivalent of modern contract and property law must be in existence for a market to function at all.<BR/><BR/>The proper libertarian view is a minimal amount of government regulation and it is to this end that reforms should be focused. Talk of markets being dead and government being required to step and fix everything is not only premature, but ridiculous. The last comparable financial situation (which has been raised in most commentaries drawing comparisons) is the Great Depression of the 1930s (but, as The Economist recently noted, we are a long way from the problems experienced there). That was when the world first flirted with over-regulation and Keynesian economics began to be applied. The outcome of all of this was the New Deal in the United States. The problems created by the government intervention in areas where such involvement should be kept to a minimum are still being dealt with now - fully three-quarters of a century later.<BR/><BR/>While some reform of regulatory standards may be justified, this should be done with cool heads and not on the fly or with the intention of implementing long-discredited left-wing policies. A legitimate goal of such reforms may be to improve transparency in financial dealings and perhaps a review (not necessarily resulting in any changes) to prudential standards for financial institutions. Regulators should think long and hard before they impose any specific limitations on how markets operate, as the consequences of such well-intentioned policies often are unforeseen and only wind up hurting those they are meant to protect.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-22031270.post-82171290031179276342008-10-24T21:58:00.000+11:002008-10-24T21:58:00.000+11:00And that $700 billion "bailout" seems so retro, an...And that $700 billion "bailout" seems so retro, and so long ago. And the proponents said: "do it or the US may slide into recession." Ahem.<BR/><BR/>Posner's blog dated 19 Octiber already seems quaint.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-22031270.post-70084378770502772802008-10-24T21:32:00.000+11:002008-10-24T21:32:00.000+11:00Every regulator from Bernanke down are lining up t...<I>Every regulator from Bernanke down are lining up to say to the financial players that the party is over. so is every government and every opposition.</I><BR/><BR/>this is insane talk. There isn't one financial institution is the world that is government owned and not overly leveraged by any private prudential standards. To even suggest that more regulation means less leverage is silly talk.<BR/><BR/>That suggestion means that government like Rudds would encourage banks not to lend for housing as as example. That has as much chance of happening as Rudd suddenly becoming economically literate.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-22031270.post-73779319408705117372008-10-24T13:27:00.000+11:002008-10-24T13:27:00.000+11:00"if you don't want freight trains hitting the capi..."if you don't want freight trains hitting the capital markets make sure the punch bowl gets taken away at a reasonable hour."<BR/><BR/>That's a horrible mixed metaphor, JC., just horrible.<BR/><BR/>That's a good essay Harry. However while of course we don't actually operate completely pure free market fundamentalism throughout the whole economy, in those bits of it that we do, like having unregulated derivatives, the result is disastrous. You can't say market regulation of derivatives failed, as Sinclair would like to believe, because there was no regulation.<BR/><BR/>Alan Greenspan now admits he was wrong not to regulate them. There's nothing like a dose of reality to change some people's minds.<BR/><BR/>We're now going to see a swing back to the 1945-1975 model of regulated capitalism. All the political elements are in place.<BR/><BR/>The credit crunch = the depression (though not as bad thankfully)<BR/><BR/>Obama = Roosevelt<BR/><BR/>Every regulator from Bernanke down are lining up to say to the financial players that the party is over. so is every government and every opposition. While financial systems have been nationalised with not a hint of complaint from anybody.<BR/><BR/>Smart bankers like ANZ's Mike Smith are saying things like financial innovation from now on should be focussed on how to improve service for the customers, not more and more ways to clip the same ticket.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-22031270.post-82191028878633192992008-10-23T06:28:00.000+11:002008-10-23T06:28:00.000+11:00JC (I edited out personal stuff, HC)HenryFact is t...JC (I edited out personal stuff, HC)<BR/><BR/>Henry<BR/><BR/>Fact is the rating agencies were working with models that had reasonable built in assumptions. Unless you can show why those assumptions were manipulated in such as way as to be fraudulent its simply trying to push a pile of intellectual shit up hill.<BR/><BR/>Those models according to what I have read were reasonably robust in probability estimates with a 1 in 100 year chance of a "storm".<BR/><BR/>In other words they were based on what people thought were reasonable assumptions.<BR/><BR/>...<BR/><BR/><BR/>Don't let me tell you though as Anna Schwartz explained in a recent WSJ piece when she argues that every single crash or recession since the 1920's has been caused by monetary miscalculation by the federal reserve.<BR/><BR/>In other words if you don't want freight trains hitting the capital markets make sure the punch bowl gets taken away at a reasonable hour.<BR/><BR/>Let me guess Schwartz can't be trusted because she smoked a cigarette in her 20's ... LOL.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-22031270.post-16407181681775376392008-10-22T22:11:00.000+11:002008-10-22T22:11:00.000+11:00Marvellous. But Fisher’s analysis of the Great Dep...Marvellous. But Fisher’s analysis of the Great Depression makes for sobering reading: “Easy money is the great cause of over-borrowing. When an investor thinks he can make over 100 per cent per annum by borrowing at 6 per cent, he will be tempted to borrow, and to invest or speculate with the borrowed money. This was a prime cause leading to the over-indebtedness of 1929. Inventions and technological improvements created wonderful investment opportunities, and so caused big debts.”<BR/><BR/>Fisher lost his shirt in the Depression and was discredited somewhat afterwards even though he made perfect sense.<BR/><BR/>There is a great deal of misunderstanding as to what happened in 1929. A lot of people think that Hoover listened to his Treasury Secretary Mellon who wanted to "purge the rottenness" from the economy, lower the high cost of living, and spur efficient enterprise. Hoover spurned the advice from “the leave it alone liquidationists” and instead pumped liquidity into the system because credit dried up in exactly the same way as it had this time.<BR/><BR/>“During the week of the crash, the final week of October, the Fed pumped $300 million to the reserves of the nation's banks. During that week, the Federal Reserve doubled its holdings of government securities, adding over $150 million to reserves, and it discounted about $200 million more for member banks… the economy was fated to be continually bolstered by governmental measures that could only prolong its state. This enormous expansion was generated to prevent liquidation on the stock market and to permit the New York City banks to take over the brokers' loans that the other, non-bank, lenders were liquidating… The Fed also promptly and sharply lowered its rediscount rate, from 6 percent at the beginning of the crash to 4 percent by mid-November. Acceptance rates were also reduced considerably. y mid-November, the great stock break was over, and the market, falsely stimulated by artificial credit, began to move upward again.”<BR/><BR/>Samuelson is all very well, but Karl Marx’s analysis is more to the point: When you get an unbalanced dynamic of accumulation of capital, as a corollary you get underconsumption by the masses. To solve the problem this time, they got cheap credit, or one that gave the illusion of being so.<BR/><BR/>We can’t simply single out one element in the mess we’re in as a the causative one, even one as toxic as the debt instruments and their derivatives. The problem is that the multiplication of derivatives is way beyond the actual capital base on which they are based. Hence, the subprime debt, all of it, is no bigger than 1.3 trillion bucks. Yet the debt instruments, with their associated reinsurance is about 50 trillion. <BR/><BR/>I am afraid Harry, that capitalism is in deep shit and no amount of fast talking by politicians and and a paddockfull of experts is going to alter the prognosis. <BR/><BR/>Finally, I note you have gone to Quiggin as the source of rating agencies’ conflict of interest, or rather their sleazy corrupt prostitution. Note this commentator scooped him by a month <A HREF="http://manly-daily.whereilive.com.au/news/story/just-make-nsw-a-big-junk-bond/" REL="nofollow"> <EM>Click here</EM></A>Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-22031270.post-2495716455670831662008-10-22T21:55:00.000+11:002008-10-22T21:55:00.000+11:00The housing boom and bust in the US is just a less...The housing boom and bust in the US is just a lesson that there are no arbitrage opportunities in the economy. <BR/><BR/>Joe Plumber, bankers, investment bankers, and brokers fell for it.<BR/><BR/>The main change that should happen is not in the way economists think but in the way people applying finance/trading strategies think. <BR/>This should be the end of the hocus pocus underlying the financial markets.<BR/><BR/>The main idea that a good economics education gives you is that there are no get rich quick schemes and no investment/trading strategies that will consistently make abnormal profits. <BR/><BR/>If you want to get rich, then setup a monopoly or collude with your competitors to fix prices. That's about it.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-22031270.post-9155788207339804102008-10-22T15:06:00.000+11:002008-10-22T15:06:00.000+11:00I agree with the great bulk of what you wrote, Har...I agree with the great bulk of what you wrote, Harry. But surely one of the broader lessons here is about regulatory, not market, failure.<BR/><BR/>And regulatory failure is endogenous to the process of a boom - it's no accident that free FMFs were put in charge of things while their ideology was apparently the source of the boom (same thing happened in the 1920s, BTW). For it's not only businessmen who are subject to Keynes' "animal spirits".Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-22031270.post-6712419871938386152008-10-22T13:08:00.000+11:002008-10-22T13:08:00.000+11:00There is a lot in here and I agree with much of wh...There is a lot in here and I agree with much of what you say. Yet you haven't resisted the cheap shots. I am not at all convinced that "it does confirm that extreme libertarianism or 'free market fundamentalism' (FMF) has a limited role in thinking about how financial markets, at least, should operate." The current functioning of financial markets is miles away from what most libertarians would propose - now I'm not suggesting that the 'mainstream' libertarian view necessarily be adopted, but to suggest that the current financial system approximates the libertarian ideal is not correct. (I hope you appreciate the irony in there actually being something called a 'mainstream' libertarian view.) Also many individuals who call themselves libertarian are in fact anarcho-capitalists - a somewhat different concept IMHO.<BR/><BR/>Your very next sentence is exactly right. "Market regulation has failed but capitalism as a whole has not."<BR/><BR/>Anyway, just some initial thoughts.Anonymousnoreply@blogger.com