One of the things some people are only now becoming aware of—and it’s happening now because of the increased focus on this sector of the financial industry, methinks—is that a nontrivial amount of Wall Street transactions are currently unregulated by federal and/or state law. As a New York Times article suggests, that seems about to change. Problem is, it won’t change in the direction that will help.
This is a complicated mess, and even though I’ve been following it to some degree throughout, I don’t pretend to fully understand it. But in reading through the aforementioned article, In Washington, a Split Over Regulation of Wall Street, it seems prtty clear that those who are advocating more and “better” regulation are missing two key elements of the environment. They are:
1]. Investing is a speculative, and therefore inherently risky, activity.
2]. Individuals are (for the most part) free to choose whether they want to engage in those activities or not.
Regulation cannot eliminate risk. Some regulations can appear to mitigate it, but in so doing they concomitantly limit the choices available. They have the effect of setting a lower bound of safety, meaning that a company may be unwilling to voluntarily adopt stricter criteria (or regs may forbid such a course—remember the ranchers who wanted to voluntarily test their beef for mad cow disease were prohibited from doing so); and they limit the amount of danger a person can choose under protection of contract. If a market was genuinely free, all individuals in it could settle at a level of benefit:risk that’s comfortable.
An old justification for regulation is that it’s hard to know what a company is doing; thus, the government, via licensing, regulation, and enforcement thereof, serves as a watchdog to help protect indivduals who can’t adequately protect themselves. It should be obvious that this paternalistic attitude has moved from “protection” to protectionism of entrenched companies and practices.
Today, with information much more available, and more cheaply and easily disseminated than ever before, this rather lame protection argument is even weaker. In this country and much of the world, it’s pretty easy for even non-computer owners to research a question or issue—even contact the CEO in some cases and get answers directly from the person who ostensibly has them (or can get them). Thus, it seems to me that instead of looking to regulate Wall Street even more, doing away with the regulations and accompanying protectionism would improve the situation.
What do you think? If you’re so inclined, you can vote in the poll I set up—Is now a good time to abolish federal regulation of industries?—and come back here to explain or defend your position in the comments, if you like.
Regulatory Rigamarole
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Regulation=Illusory Protection
Regulation only gives the illusion of protection. It provides little if any actual protection. Bank failures, e.coli outbreaks, and other crises always result in a call for the government to save us from it ever happening again. But they continue to happen. In fact, the regulatory state increases the likelihood of a major disaster happening, because of government's preference for protecting larger politically entrenched companies. Consider e.coli. An e.coli outbreak at a small farm will affect a handful of people. An e.coli outbreak at a centralized processing plant could endanger hundreds or thousands. The failure of a small local bank will affect a relative handful of people who could be easily helped by private charity. If Citibank goes under, the effect will be felt worldwide. That is why I have often heard that some corporations are "too big to be allowed to fail." Such a phenomenon is the direct result of government interference in the economy.
You said that regulation has become protection of entrenched companies and practices. I think that it has always been thus, and is not a recent happening.
The question is: who does the regulating?
It is always a "good time" to abolish regulations by involuntary governments.
I'm sure you all know by now that I spent more than 20 years as a nurse in one capacity or another, much of it as a teacher of nurses. Medicine is probably one of the most heavily regulated industries (or whatever you want to call it) and the results have been terrible for everyone.
The fact that those results continue to form the basis for ever MORE control and regulations would seem to define the real problem. At least it does for me.
It all goes right back to the question of, "who is responsible?" For those who accept individual responsibility for life, safety, etc... the answer is simple. "I am." But for those who refuse to consider personal responsibility for their lives and well being, the answer is far less clear and most will cling to anyone who will promise them safety and comfort (lack of responsibility) at someone else's expense.
They can't allow themselves to SEE the destructive results of what they demand, and then seek to fix the perceived problems (rather than the root cause) with ever more of the same.
I doubt it's much different in any other area of business.
So, when we self regulate we are able to make optimal use of our lives and property or suffer the consequences of misjudgment - which usually leads directly to better judgment next time!
Did you ever eat a green apple? Ever want to eat another one?
Or maybe not so complicated...
This is a complicated mess, and even though I’ve been following it to some degree throughout, I don’t pretend to fully understand it.
I've been finding G. Edward Griffin's The Creature From Jekyll Island to be very informative. The short answer is that the financial system is continuing to work just as the Wall Street bankers who plotted to set up the Federal Reserve, and the Fabian Socialists and Communists who created the IMF, designed it to.
You’re almost certainly right.
Actually, Astoria, you are right that the system is chugging along as designed. That probably does mean that it isn’t a complicated mess, in one sense—but aside from that, it is true that the situation is complex, with liquidity problems cascading into solvency problems, and the Amerikan taxpayer getting hammered from all directions.
I’ve had that book recommended to me several times; maybe I oughta read it.