Tuesday, April 27, 2010
Simple Survival Rules The Day
There has been a number of books written about the most recent financial crisis in the United States. I have either read a review of many of them, or, I read the book itself. Add to this the number of newspaper and magazine articles that have been written about the financial crisis by knowledgeable and experienced people and we have a serious body of work detailing what took place over several years. We know what worked for approximately 50 years, from 1930s to the end of the 1970s, and we have seen what happened when regulation was suppressed and markets were let to correct themselves. The whole idea that markets are self correcting is a false choice. Regulation is most certainly needed and indeed necessary for the safe and orderly movement of markets. Those that claim this is not the case are dead wrong. All we have to do is look where we have been and where we are now.
But, it is the indifference that strikes the fatal blow to better markets and more transparent accountability. In simple English, not enough people give a damn. To be more fair, I could say that not enough people understand what is taking place in an industry that is much more complicated than buying a car. If I had a formula for a drug to stop cancer in its tracks, I could print it out and others could test it to see if it works. If my drug manipulated certain proteins so that no blood would supply a tumor with nourishment, and I listed every type of cancerous tumor it would work on, the formula could be tested and verified. But, finance, investment securities and their regulation is not so clearly observed or tested. And, as a result, the amount of disinformation in the banking and securities markets is abundant.
As I have written many times before, economics is easy, politics is hard. People that have a stake to protect what they have will not go quietly or without a fight. There is a lot of money being poured into Washington, D.C. and the politicians know they need that money to win re-election. Simple survival rules the day. Let us hope that the survival of the overwhelming majority of the people will rule the day.