Financial Regulations

AarontheCurious posted on Wed, Jul 14 2010 5:04 PM

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So I'm already versed on the Rothbardian revisionist history of regulations, I've even got The Triumph of Conservatism on my shelf waiting to be read.  But this video provoked some thoughts of mine which leads me to believe we have a chance to develop a more nuanced position on regulation.

http://www.youtube.com/watch?v=v_I3fh0AW50

As you can see this Government Bad! point of view comes off as very oversimplifying the issue even though actually have a very coherent opinion if they would only understand what I like to call the Kolko Cartelization Argument

I think Schiff held his own but I would like to address some certain points that were brought up.  I do think Cenk is ignorant of great depression history so I won't bother addressing that.

Okay so the view that many "pragmatic" social democrat types hold is that Glass Steagall like some magic force field was the only thing preventing us from economic Armageddon

2 issues with this.

1.  The regulators don't enforce every rule, they have literally bookshelves full of regulations, so saying that regulators are analogous to referee's or watchdogs is erroneous.  I like to think of the regulations more as a shed full of tools and they pick and choose which ones they would like to use to nudge players in the market in the direction that they would like to see the market go.

2.  Glass Steagall only blocked certain types of speculation, it didn't really do away with fractional reserve banking, there is no reason to think the speculation wouldn't manifest itself in another form, I do not think the bankers lack the creativity or the imagination to find risky investments.  It's kind of like pointing to someone who gained 80 pounds in 4 years and saying "if only we had banned cheeseburgers" I say he would of went for the fried chicken.

Obviously he isn't understanding the underlying causes of the crash and is pointing at how they happened to manifest themselves

What he said about shareholder control is a function of corporate law and should have been answered with more agreement/openness as this aspect of corporate law was developed by a series of court rulings in the mid 19th century.  Not the market.

Which brings me to the main point I would like to make, perhaps we shouldn't reject all regulation proposals by the social democrats off hand.  I say we begin distinguishing between:

Expansion of Regulation vs. Optimization of Regulation

Otherwise we will come off as basically WANTING the government to fail, which in my opinion is a strategically bad move.

Another point I would like to bring up is the possibility of regulations potentially mitigating a problem of a problem in our current system of property rights.  Specifically the right to get injunctions against others directly violating our property rights through environmental damage or even putting us at risk.  I'm open to the possibility of a regulatory commission mitigating this IF we already have to put up with them they may as well do something useful.

Also if anyone could point to specific powers that the various regulatory commissions had and could have used but didn't that would make for an even better argument.  Because as far as I can tell the regulators were encouraging the players in the market to act this way.