isn't that what caused the problem in the first place? not enough regulation?
Cheap, easy money (ie artificially low interest ratres), is what caused the problem. Everyone says, well, if we had more regulation and oversight, then AIG would not have been allowed to issue so many credit default swaps. We could have capped them, and then it would have minimized the damage to that company, and the banks whose mortgages they were insuring. However, had the federal reserve not irresponsibly lowered interest rates to such an artificially low level then there never would have been a housing bubble to pop, which in turn means that AIG never would have had to issue as many CDS as they did, thus avoiding the whole problem to begin with. As I said above, when people are making money, capitalism is great and working well. When they start losing money, all of sudden capitalism is broken, and there wasn't enough oversight, and now we need socialism to save capitalism. The federal reserve made the first mistake by lowering interest rates far too low. However, businesses and individuals need to take responsibility for using those low rates to turn the housing market into a casino. No one forced them to gamble, but they did, and they need to suffer the consequences.
Another great critic of free market fundamentalism is
Robert Shiller. One of the founders of behavioral finance, Shiller has demonstrated that even free markets are not rational. Well constructed regulations are thus needed as market irrationality can lead to disaster. Shiller predicted both the dot com bubble and the housing collapse based on his models.
His entire course on financial markets is available
online at Yale University. It takes some time, but if anyone really wants to understand these things watching these lectures is a great start.
Thank you for the link. I will take a look at that.
Without seeing any of his lectures, I will say that I am not fan of onerous regulation, and over regulation. All regulation does is introduce hurdles and create inefficiencies for business. The labour and capital used to satisfy regulation could have been used to better the business, hire new workers, and in general create more wealth. Too much regulation siphons away labour and capital from better use.
Ideal for the markets? Perhaps. Ideal for your average person? Probably not.
I think it is ideal for everyone. As said above, too much regulation destroys potential wealth and creates inefficiencies. The labour and capital used by businesses to adhere to regulations could have been used to hire new workers, invent new products, create innovations, and overall create more wealth. This is good for everyone, not just the market.
I can speak first hand about Sarbanes Oxley. It is an onerous piece of legislation, one that weighs down organizations. The time, money, and effort used by the company I worked for to become SOX compliant was horrific. That time, money, and effort is gone forever and we will never get them back. We could have used them to better business.
This is the point. Why enable people that have demonstrated lack of responsibility? We will all have our own opinion of what should be but I do believe that "the strong will survive". We need strong reliable companies and employment to pull us along. Not mis-managed companies (and governments) to bleed the funds.
Someone agrees with me!
All this bailout money created via inflation destroys everyone's wealth as it devalues the currency, and makes the cost of goods more expensive. Ultimately everyone's purchasing power is diminished, and if our income does not rise in accordance with the inflation, the our wealth declines, as does our standard of living. The people who get punished the most from bailouts are the responsible people that worked hard and saved their money, as now, their savings are worth less. People on fixed incomes will also get hit hard. Also, the low interest rates means that people with savings get very little return. The only way for them get something back is to "invest" in the stock market, or flip houses, thus creating more speculation and bubble conditions. All of this money printing though is wonderful for the irresponsible folks. They have no savings. They are in debt. Whatever free cash they can get their hands on is good for them. So ultimately, the responsible pay for the mistakes of the irresponsible, and we are all poorer and in worse shape for it.
