A Third World hellhole. A place with a disastrous economy, where most people are impoverished and exploited ruthlessly, where the government such as it is works to benefit the privileged and keep the commoners in their place, and the rich live in fortified compounds with heavily armed mercenary guards. The sort of place with contaminated food and water, severe pollution, little medical care and death tolls in the tens of thousands every time there’s a natural disaster.
Much like we have now. This is an experiment that failed.
When a writer on this board says he has libertarian leanings ,it does net get respect. I think, how can you ? Why? It is a dumb selfish philosophy .
Ok, well we’ve got a miscommunication here. I dont’ think the banking crisis was caused by bad regulation. I do believe it was exacerbated and exploded in the very destructive way it did because of bad regulation. Unfortunately, there’s no easy to way to just “know” by looking from afar. You have to get into the nitty-gritty etaisl of what happened and when.
For example, the Mark-to-Market rules (there’s a thread on this around somewhere) are not neccessarily a bad idea. It basically says you have to value things at their current market price (in some times and conditions, yadda yadda). The problem was that the people who wrote this rule didn’t consider what would happen when it was combined with another rule already in place as well as a significant market downturn. The result? Investment firms were forced to sell to maintain their legally-required liquidity. Since prices were falling already, dumping more stocks n’ bonds sent them further, which made the firms raise even more cash, as infinitum, ad nauseum. To make matters worse, the stocks and bonsd sold were probably intended for mid to long range use, which means that long-range value has been destroyed (making everyone in America that much poorer) for the sake of short-term rules. Yay.
That was a relatively simple interaction, yet nobody gave it a thought since it hadn’t come up before.
Another one I am more familiar with were the incredible geniuses (irony alert) who decided you could Naked Short stocks. (Wait, was there a thead on this, too?) Shorting stocks is good. It lets you make money when stocks are falling, and it generally provides a good way of helping the market value things accurately.
Naked shorting is a disaster waiting to happen. Normal Shorting requires you to borrrow stock. Naked just means you can sell something you don’t own. This works in the limited world of commodity markets, but in the stock market during a downturn? Egads! It’s a nightmare. And it’s a bloody obvious one - I had thought that Naked Shorting was still banned, because it’s a horrible horrible idea and not neccesary in an era of internet connectivity.
These are nto really complex ideas, but they are important. I dislike that US financial regulations are both backward-looking and very heavy handed. learning lessons from the past is good. Not looking into the future is very, very bad.
First off, I am not a No-Market Regulation man.
Second, you’re generalizing so much it’s pointless. Of course firms don’t like competition. It’s bad for the individual firms (except in a Perfect Competition market, where it’s almost irrelevant). But of course, new entrants are attracted by opportunity, so monopolies have to defend their turf constantly.
For the msot part, they can’t exist without government regulations protecting them. Think about it: why do big firms not mind big regulations? Because they know small, efficient start-ups don’t have a hundred-man acounting department. Y want to now why there’s a real death of big-industry competition in the US? Because the tax regulations and accounting requirements and paperwork make it almost impossible to get of the ground. Life was tough but doable before Sarbanes-Oxley, but now it’s a disaster.
It’s not exactly the same thing though. The Communists, for example, HAD power…for decades. That they fucked it up is really their own lookout. Trying to hand wave that away as not REAL Communism IS a ‘no true Scotsman’. Instead what the OP seems to be trying to do is show that, although the situation bears no resembelence whatsoever to libertarianism, does not follow libertarian ideals nor were libertarians in charge, that this should all somehow prove that this situation has (or should have I suppose) killed off libertarianism. How does this make any kind of sense? How is this a ‘no true Scotsman’ situation? This is the equivelent of pointing at some guy from outer Mongolia, calling him a Scotsman (while asking him why he doesn’t wear a kilt), and when he looks back at you blankly saying ‘no true Scotsman!’. Well yeah…said outer Mongolian ISN’T a Scotsman, true or not.
Deregulation does not equal no regulation…which is a libertarian ideal (or at least very little regulation). And there is no way that anyone can make a case that the situation wasn’t regulated AND controlled by the government. Those things are anathema to libertarianism. The situation bears no resemblance whatsoever to one a libertarian would find acceptable. The market was completely distorted by government intervention and regulation. The parts that were deregulated were haphazard and did more harm than good (from a libertarians perspective) because they further distorted the market and lead to a lot of the stupid things business did in the last decade or so leading to the current crisis. And libertarians had no say in either the regulation or the creation of that environment.
Look…I’m a reformed libertarian here. I STILL think that the philosophy has a lot of merit, when tempered with a heavy dose of reality. It’s an idealized philosophy and is probably unworkable in the real world, at least as proposed by most libertarian types. But anyone who is going to try and shoe horn in libertarians into the current crisis has no idea what libertarianism really is. Most of the hard core libertarian types I know are pretty much shaking their heads and saying ‘we told you so’ about this crisis…which is pretty far from packing it in and writing off libertarianism as a failed philosophy. Until and unless someone actually tries to test libertarianism in the real world and THEN it fails you aren’t going to get it’s adherents to admit their entire world view is wrong. Hell, look at Communists and Socialists. I remember reading that Socialism was dead at one point, that it was a failed experiment. And it seemed that Europe was drowning under it at one point. And yet it’s adherents didn’t give up…they just repackaged themselves and took a dose of reality to make it work. Communism? Everyone KNEW it was dead, a failed system, unworkable with no Scotsmen to be found. Yet it still goes on, and there are still people who believe it COULD work, etc etc.
Well, there is your problem. Libertarianism doesn’t look anything like this. This isn’t even a little libertarianism. This is government sticking it’s thumb in the pie and business being stupid by allowing the distorted market and their own greed to influence their decision process.
As for what a lot of libertarianism would look like…who knows? No one has ever tried it. My GUESS though is that libertarianism wouldn’t work unless, like those socialists, they brought in enough reality to make it work. I don’t think any system of extremes (economically) can work in today’s world…I think you need a mix between capitalism and socialism. A libertarian economic society that allowed for a balance of regulation and social safety net would probably be workable…but it wouldn’t look anything like what we have today.
-XT
Greenspan Shrugged | HuffPost Latest News Greenspan had no problem claiming his libertarian beliefs. The hands off philosophy is a joke. The function of the government is to attempt to force competition. Leave them free of restraint and they collude and fix the market.
The financial markets designed instruments that were hundreds of pages long . That made regulation and understanding them difficult. They were designed to hide the fact that they were ignoring margins. They had gambled the company to make billions of dollars. It worked very well. When they sold the swaps they knew they could not back them if anything went wrong. Why did they sell them? Because they could.Regulation works for the people. Non regulation works for the wealthy. Greenspan claims regulation is necessary now. CNBC suddenly thinks it is needed and necessary. Many of the believers are changing.
I’d be surprised if even one in ten of the people in this forum who mock libertarian economic theories have gone so far as to read the Cliff’s Notes on those same theories – *maybe *they’ve read the dust jacket for the Cliff’s Notes.
To that end:
Understanding Recession
Did the Fed Cause the Housing Bubble?
The Worst Recession in 25 Years?
The Importance of Capital Theory
These articles are all from partisan sources, and I neither endorse nor disavow the views contained therein. Rather, I present them as relatively clear, concise, and representative explanations of libertarian thought on the current crisis (as well as business cycles in general). In other words, the Cliff’s Notes. It’s in your interests to read them, as your criticisms will carry more weight if they suggest you know a thing or two about what you’re criticizing.
You’re hinting at an argument which blames the credit crisis and bank failures on over regulation. Is this the argument you’re trying to make?
It’s nothing so simple. There were a LOT of reasons behind it, and unless you take a comic book view of the world the situation is complex. Certainly regulation had it’s part (as well as deregulation of certain things, making an imbalance). The environment created was a distortion in the market. Also, the government (and various government factions) pushed things in certain directions for political reasons. Couple this with businesses making bad decisions based on those market distortions (and just basic greed and stupidity) and you have the current situation. None of this bears any resemblance to libertarianism though…and THAT was the argument I was trying to make.
In a libertarian world there would BE no government regulation (thus no need for unbalanced deregulation), no government distortions by trying to influence the market in certain ways to achieve certain social engineering goals, and so businesses would have been free to do what was in their best interests. If they failed then there would be no government bail out…they would have simply failed and we would need a market adjustment that, while painful, would have corrected any errors or problems or self distortions present.
Whether or not this is reality is another debate…the POINT though is that the situation both before and after this crisis bears no resemblance to libertarian philosophy or ideals at all…so, getting back to the actual OP, I don’t see how this crisis will kill libertarianism. All it is doing is showing just how ignorant some folks are about what libertarianism actually is.
-XT
The first cause of the financial crisis is the Federal Reserve’s easy money policies. It’s not the only cause, but it is the cause that allowed all the other causes to precipitate. The Fed is the de facto regulator of interest rates even though they don’t target interest rates specifically. They kept money too cheap for too long. Too much money chasing too few goods causes inflation. What Greenspan never seemed to get through his thick fucking head and what any first year Austrian School economist has been saying for the last 15 years is that money can be used to buy financial “goods” when the public has had their fill of consumer goods. Financial asset prices can inflate just like consumer and producer prices. The so called Equity Premium Puzzle isn’t a puzzle at all. It’s rampant equity price inflation.
Libertarians need not back pedal at all over the financial crisis because any of them with a knowledge of economics has been saying that the Fed should be fucking abolished. Even if you’re not a libertarian then you should at least realize that the way to regulate wealth is to tax and spend, not regulate interest rates.
What the banking crisis has showed us is that banks DONT do what’s in the bank’s best interest. The people controlling the banks do what’s in their own personal best interest. Seriously, how hard is it to see that selling things you don’t have is bad? How hard is it to see that lending massive amounts of money to people who can’t afford to pay it back is bad? But it made individual people rich. Nobody cared about the stockholders, nobody cared about the future of the company, nobody cared about the future consequences. In that respect, yes, the banking industry DOES resemble a model of libertarianism.
Irregardless of the causes of the current crisis and whether it could have been avoided with more or less regulation. I think a prolonged, serious, downturn could seriously damage the libertarian message. With very high employment rates, and constant economic growth, its all well and good preaching about the evil of big government, and labeling all kinds of welfare and other government help as “theft”. But that same message doesn’t seem such a good idea when its us (i.e. your ordinary middle class “man on the street”) and our family, and our friends, that need that help
You do realize that its the Federal Reserve that allows banks to sell things (ie, loan money) they don’t have? The Federal Reserve has taken what would be considered embezzlement in any other context and made it legal.
*You do realize that its the Federal Reserve that **allows *banks to sell things (ie, loan money) they don’t have? The Federal Reserve has taken what would be considered embezzlement in any other context and made it legal.
Well, should they **forbid **them from doing this? Or would that be over-regulation?
One of the main drawbacks of libertarian philosophy is that a “free” market has a very short time horizon. For instance, a bank that makes correct --but very risky – bets that the housing market will keep going up, will be able to drive more conservative competing banks out of business (or buy them up) in the short run. Some of the in-the-middle banks decide they need to make increasingly risky bets (e.g. loans) as well, just to keep up. The short-termism is reinforced by the outlandish compensation to top execs making correct, but risky bets. If the “excessive risk-taking” banks survive long enough, they eventually become too big too fail.
Ideally, govt regulation enforces a kind of conservativsm, long-term thinking, in the banking industry. It doesn’t always work…it appears several banking execs may have openly violated Sarbanes Oxley fo instance, but at least that legislation could now result in prosecution of some of the worst offenders.
The growth of the shadow banking system in CDS and other exotic instruments the past 10 or so years gives a hint of a what a libertarian financial system might look like…unregulated, and mostly even unreported – so that even estimating the size of the problem is difficult.
I’d like to hear a libertarian answer, what govt agency pointed a gun at Bear Stearns, Lehman, Morgan Stanley, etc… basically the whole investment banking industry, and “forced” them to trade exotic unregulated securties over the counter? Of course the answer is the opposite: they demanded the right to do so, and the bought and paid for govt complied.
You are 100 percent on the money.
And who has run the Federal Reserve during this run up? A libertarian by the name of Alan Greenspan. 19 years of some doe-eyed Ayn Rand humper wanna-be. Rand was a writer of fiction, a point that most of her rabid followers seem to be completely oblivious to. The government and the fed had one job since the end of the Great Depression with respect to the economy: make sure the Great Depression didn’t happen again. But they had to go fuck it up and remove all the rules and reserve requirements that prevented exactly that.
Greenspan, idiot that I have always thought that he is, didn’t seem to understand that without the rule of law financial managers would run up huge commissions on financial products that sell and give them a commission now, but don’t really give a damn if they are good down the road.
That’s the point! You have to have tighter regulations, because if it’s legal to sell shit you don’t own and if there’s little oversight to the terms you’re writing on your loans to whoever can make you the quickest buck, THIS happens. Banks have proven they will not act in their (or our) best interest if it conflicts with the best interest of the individuals deciding what to do.
But that conflicts with the religion of free markets, so it cannot be true. If there is anything that the Republican Party has taught us, lo these many years since the First Coming of Reagan, it is that for rich people to be rich, we must enrich them further, which cannot be done without removing all the rules that prevent financial lawlessness.
But seriously, you will never convince a free marketer that they are wrong. They are hardwired to believe in free markets. (I believe that properly regulated free markets are beneficial.)
It’s that exact point that has been demonstrated by this crisis and undermines Libertarianism. No one believes or claims that the system we had was a pure Libertarian system (and, after all, like pure communism, it will never exist). Rather the reason this crisis has discredited Libertarianism is because it has so blatantly demonstrated the falsity of many of the assumptions that their theory is built upon. To wit, that markets act rationally, that people won’t take ridiculous risks, that competition will ensure efficiency, that markets are sufficiently opaque for people to make rational decisions, that the market is always more efficient than the government, and on and on.
Hardly.
How do you know what a ridiculous risk is? How do you know where the line is?
The only real way is to get up real close to it, smell the smell of death, and back away. Or to cross the line, fail, go bankrupt, and learn from your mistakes.
As well as have others observe them and learn as well. Libertarian philosophy doesn’t argue that mistakes will never be made. In fact, mistakes are essential to understanding how to manage risk and become better managers of risk going forward.
Many banking institutions - and I’m talking about ones that are still standing - like BofA, Chase, CapitalOne, will only hire senior credit officers if they can describe 1 or 2 situations in their life where they made a really BAD decision. And screwed up big time. And cost their companies lots of money in the process. And then described what they learned from that, and why they will never make that mistake again. A lot of lending institutions will never hire credit officers in senior roles who claim to have never made a mistake. If that was true, they would have no idea how to bound the risk profile on the decisions for which they are responsible.
How about the folks who concentrated all of their 401k stock in Enron? Think they will ever make that mistake again? How about investors who bet a fortune on fly-by-night dot-coms and lost big? Think they will make that mistake again?
If they have reasonable memories, they shouldn’t. There are basketfuls of articles (some in the NY times in the past week) that describe the new investment and management discipline in Silicon Valley post-Web 1.0 bust. The discipline was instilled because of the bust. It’s a good thing. The discipline wasn’t instilled because some government official waded in to tell tech companies how to manage their businesses.
Do you think a mid-level GS-12, or some other government official, sitting in some cubicle on M street in downtown D.C. has a better grasp of these complex decisions than the market? That they could have somehow foreseen it, with the wisdom of Solomon, and waved it all away with divine intervention?
Give me a break. As stated many times, the House and Senate banking committees, and associated regulators, were knee-deep in Fannie and Freddie for years. They caused the problem as much as anybody.
Making bad decisions that cause companies to go bankrupt is part of the process. There is nothing in that process that conflicts with libertarianism. It’s essential for free markets to function well.
Thanks for the response!
People won’t take ridiculous risks was an assumption of libertarians (or anyone)? Huh? I’m no libertarian, but I’ve never heard of such an argument before. Perhaps there is some technical meaning of “ridiculous” as a measure of risk that I am simply unfamiliar with.