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Posts Tagged ‘Is Deregulation to Blame’

Our friends at Powerline (does being a Facebook friend count?) offer a link to a Claremont Review of Books review by James Keller entitled, “Is Deregulation to Blame?”  The review is on two texts, A Failure of Capitalism by Richard Posner, and Getting Off Track by John Taylor.  I highly recommend reading the review, as it is deals with the ol’ ‘capitalism is to blame’ theory of this most recent financial calamity and recession.

The topic of financial regulation is one that I find extremely interesting as it parallels many views I have on other issues such as education, welfare, etc.  In this blog I will many times bemoan the lack of accountability to consequences that many government institutions create.  James touches on this in his closing paragraph:

Regulators need not be heroes if creditors have an interest in being vigilant; and creditors will have such an interest if recklessness faces the penalty of real loss. Unfortunately, we have just assured all creditors that their interests will be protected, no matter how reckless they are. (emphasis added)

Regulation is a fashionable word amongst those who despise capitalism and the free market, and even those who just mildly distrust it.  But as this review points out, the very areas that are most heavily regulated are most often the ones with the greatest problems:

The anticipated chain of events was a large hedge fund failing and taking down its lenders in a chain reaction. Instead, the banks failed, threatening the hedge funds. The rush to re-regulate ignores the reality that the least-regulated entities in the system—hedge funds—fared far better than the highly regulated entities like banks and insurance companies.

This article is far too small, and the financial collapse far too large to be covered sufficiently, however a benefit of Claremont reviews is that they are not the one paragraph People Magazine reviews, but longer articles that typically are able to be quite thorough in presenting the case of the author.  I will admit that relying too much on a review versus actually reading the reviewed text itself can be dangerous, so I won’t make any disclaimers about Posner’s or Taylor’s books or the arguments they make… but it is still well worth the read in that it can only serve to perk your interest in this topic and to maybe cause you to look into it a little more.

Whatever your views on capitalism and its evils, this review does provide a quick overview of the problem and offers compelling objections to the claim that the financial sector needs renewed regulation.  I find it ironic that the very regulators who didn’t respond to signals and warnings that existing regulations provided, now are asking for more power and regulations to administer.  As Keller states of Treasury Secretary Tim Geithner, “What in the world had he been busying himself with beforehand?”

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