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These oligopolies [the rating agencies], which are actually sanctioned by the S.E.C., didn’t merely do their jobs badly. They didn’t simply miss a few calls her

by mhartl 18y ago

These oligopolies [the rating agencies], which are actually sanctioned by the S.E.C., didn’t merely do their jobs badly. They didn’t simply miss a few calls here and there. In pursuit of their own short-term earnings, they did exactly the opposite of what they were meant to do: rather than expose financial risk they systematically disguised it. We've heard a lot in recent months about how the current crisis proves that "unfettered capitalism" doesn't work and that libertarian political philosophy is (intellectually) bankrupt. Libertarians, we are told, are running scared. The quote above is one small example of why this claim is rubbish. The banking and financial sectors have been heavily regulated for at least 70 years; this has created the kind of cartel virtually impossible to form in a free market. And what happened to the SEC is so common it has a name: regulatory capture, the capture of the regulatory agency by the special interests of the industry being regulated. There's plenty of blame to go around: the global financial crisis has many causes. Laissez-faire capitalism isn't one of them.

russell 18y ago
Laissez-faire capitialism doesn't exist outside of flea markets. Reality is that many industries are monopolies or effective oligarchies: banking, telecommunications, insurance, pharmaceuticals... The idea that these companies working in heir own self interest will counterbalance each other is nonsense. That's why we need regulation. The problem occurs when the regulated do the regulating, whether by infiltrating the government, bribing congress, or actually writing the laws. And I will acknowledge that there is and has been a more than adequate supply of bad regulations. Also we need vigorous antitrust enforcement so that the failure of no one company can bring down the economy. AIG come to mind, but also the telcos, oil companies, and Rupert Murdoch,
- ivankirigin 18y ago
  Consumers regularly counter act companies. Brands are so valuable that companies fight to protect them. The best examples of monopolies are almost exclusively backed by government regulation. For the examples you site about companies too big to fail: firstly no company is too big to fail. Secondly, those industries would be more competitive without regulation, subsidies, the SEC, and the FCC. Finally, it makes your whole comment hold less weight when you single out Rupert Murdoch while commenting on an open forum on the internet. Communication and broadcasting tools have never been more competitive and free.
  - ph0rque 18y ago
    > Consumers regularly counter act companies. So why can't consumers get e.g. cheaper text message rates?
    - nostrademons 18y ago
      Because the FCC auctions off portions of the wireless spectrum, and various municipalities control where you can build cell towers, and so a hypothetical telecom startup devoted to the cheaper text message rates must jump through a lot of bureaucratic red tape just to setup the basic infrastructure. Most startups won't bother while there's low-hanging fruit in the unregulated Internet market. I'm not sure I buy the whole "truly free markets will save us all" argument, but the particular text-messaging argument has a very simple explanation in terms of government monopolies and the cozy relationship between entrenched players and the government.
      - davidw 18y ago
        > auctions off portions of the wireless spectrum http://en.wikipedia.org/wiki/Tragedy_of_the_commons#Modern_solutions http://en.wikipedia.org/wiki/Tragedy_of_the_commons#Modern_s... > municipalities control where you can build cell towers http://en.wikipedia.org/wiki/Externality http://en.wikipedia.org/wiki/Externality
        ivankirigin 18y ago
        Certain the tragedy of the commons is a real issue, but the FCC and the spectrum control is too far in the regulated direction.
        nostrademons 18y ago
        Again, I'm not certain that free markets are the answer. It may be that telecom is fated to suck, and the regulated alternative sucks less than the complete laissez-faire one. But I am fairly certain that telecom sucks at least in part because of regulation.
    - 18y ago
- Prrometheus 18y ago
  Regulatory costs do raise the barrier to entry and push the market towards fewer, larger firms.
- anamax 18y ago
  > The problem occurs when the regulated do the regulating, whether by infiltrating the government, bribing congress, or actually writing the laws. It's poor form to not mention that said problem always occurs. It's also poor form to not mention that all of the monopolies/oligopolies mentioned were created and/or maintained by govt action. Regulation is one of those govt actions. Regulation gives Walmart an advantage over every Mom&Pop because even at its best, regulation is a fixed cost that Walmart can spread over more transactions. At its typical, Walmart gets a deal that no one else gets.
davidw 18y ago
Really, really, really real free markets never seem to exist, though. So the whole "if only" game doesn't seem like a worthwhile one to me - if there's a failure, it's never, ever, about the market actually failing, it's that it just wasn't free enough? Sorry, back to the drawing board then, and design a system that works in the real world. It's probably not too far off from what we have now, and should be reasonably free, no doubt about that, but it should be designed to muddle along with the muddly creatures that comprise its actors, rather than some sort of idealized system that will never come to fruition. Those apes tend to have both collectivist and individualistic tendencies, and ignoring one in favor of the other is a bad idea.
- aswanson 18y ago
  What, you mean I can't just project my Platonic ideology onto the real world have it work exacty as I envision? The devil you say, David!
- Prrometheus 18y ago
  I think the discussion is getting lost here. We recognize that the current system is a partially-free, but heavily-regulated structure. Now the question is, what were the weaknesses in the system? What were the points of failure? Leftists are saying that the problem was that the system was too free. Libertarians are saying that the main problem lies with the corruption and inefficiency of regulation. Neither point is trivial, neither point can be dismissed as ideological rhetoric. There are those libertarians who will always blame the government for every problem until we live under Rothbardian anarchy. You may think that position is idiotic, and you are welcome to do so. However, the leftists who blame every problem on "the unfettered free market" sound equally idiotic to my ears in a world with regulatory agencies with multi-billion dollar budgets and hundreds of thousands of pages of rules controlling trillions of dollars of capital every day. So, don't dismiss all claims of misregulation even if some of the critics are unhinged. After all, if something is wrong there, we would expect it to have large effects. My old firm spent at least a seven-figure number each year to comply with regulatory rules, and it wasn't very large.
  - davidw 18y ago
wheels 18y ago
Libertarians and socialists seems to be the internet equivalent of cowboys and indians. Sure, it's been about a week since we played. Ready, set, go! [insert the same discussion as always here]
ardit33 18y ago
your argument is fallacious: Basically saying: Look there was SOME government regulation. The market failed, so it is the fault of regulation. less regulation is the solution. While if you flip the coin you can have: The industry was not regulated enough. Recently there has been a trend to de-regulation, and letting the market free to do what they want to do, and this let us to this huge mess. The markets are made out of people, that have a herd mentality, and only view their short term interest, while ignoring the long term ones. And there are many experiments to prove this: (insert many experiments done on how people would rather have 5$ today, then $20 if few weeks, even though the later is a much better deal). While you fail to mention the fact that the government is not forcing anybody to actually acknowledge the rating agencies ratings, and to invest by them. If the market was smart, why didn't reconginze the problem with the ratings, and avoid it? Another thing that libertarians fail to mention is that in the late 20s, early 30s, a lot of this regulation, or agencies, didn't exist!! Yet the market failed to protect against themselves, and we had the great depression. Please explain that!
- mseebach 18y ago
  No, his argument isn't fallacious, but yours is a straw man. He is NOT saying that regulation was the problem, and he's not saying that less regulation will solve the crisis. He's saying that blaming libertarianism, free markets and "unfettered capitalism" is a fallacy - simply because the financial market is neither of those.
  - ardit33 18y ago
    the argument sounds very similar to communist apologetics saying: "blaming communism on the Soviet collapse is a fallacy, simply because the Soviet Union (and all the communist nations) were never real communist countries like Marx and Engels intended".
  - halostatue 18y ago
    The crisis existed largely because existing regulations were loosened, and those that weren't were laxly enforced against people who were gaming the system. The markets in the late 1800s and 1920s were both largely libertarian, free, and unfettered -- and both failed pretty miserably, which is why we have (flawed) institutions like the SEC now.
curiousgeorge 18y ago
Communism would have worked if people didn't try to game the system too. If your philosophy isn't robust enough to deal with the sharp intrusions of reality, complaining about reality isn't the solution.
Dauntless 18y ago
You're just like Enron that always blamed government regulation of the market. Check out this documentary Enron: The Smartest Guys in the Room: http://en.wikipedia.org/wiki/Enron:_The_Smartest_Guys_in_the_Room http://en.wikipedia.org/wiki/Enron:_The_Smartest_Guys_in_the..., it's nice to learn from history. I agree that government regulation can be as dangerous as out of control police force, but libertarians (similar to communists) are completely oblivious (sometimes on purpose) of how absurd their idealistic word is and lack basic understanding of human nature.

by mhartl 18y ago

russell 18y ago

Laissez-faire capitialism doesn't exist outside of flea markets. Reality is that many industries are monopolies or effective oligarchies: banking, telecommunications, insurance, pharmaceuticals... The idea that these companies working in heir own self interest will counterbalance each other is nonsense. That's why we need regulation. The problem occurs when the regulated do the regulating, whether by infiltrating the government, bribing congress, or actually writing the laws. And I will acknowledge that there is and has been a more than adequate supply of bad regulations. Also we need vigorous antitrust enforcement so that the failure of no one company can bring down the economy. AIG come to mind, but also the telcos, oil companies, and Rupert Murdoch,

ivankirigin 18y ago
Consumers regularly counter act companies. Brands are so valuable that companies fight to protect them. The best examples of monopolies are almost exclusively backed by government regulation. For the examples you site about companies too big to fail: firstly no company is too big to fail. Secondly, those industries would be more competitive without regulation, subsidies, the SEC, and the FCC. Finally, it makes your whole comment hold less weight when you single out Rupert Murdoch while commenting on an open forum on the internet. Communication and broadcasting tools have never been more competitive and free.
- ph0rque 18y ago
  > Consumers regularly counter act companies. So why can't consumers get e.g. cheaper text message rates?
  - nostrademons 18y ago
    Because the FCC auctions off portions of the wireless spectrum, and various municipalities control where you can build cell towers, and so a hypothetical telecom startup devoted to the cheaper text message rates must jump through a lot of bureaucratic red tape just to setup the basic infrastructure. Most startups won't bother while there's low-hanging fruit in the unregulated Internet market. I'm not sure I buy the whole "truly free markets will save us all" argument, but the particular text-messaging argument has a very simple explanation in terms of government monopolies and the cozy relationship between entrenched players and the government.
    - davidw 18y ago
      > auctions off portions of the wireless spectrum http://en.wikipedia.org/wiki/Tragedy_of_the_commons#Modern_solutions http://en.wikipedia.org/wiki/Tragedy_of_the_commons#Modern_s... > municipalities control where you can build cell towers http://en.wikipedia.org/wiki/Externality http://en.wikipedia.org/wiki/Externality
      - ivankirigin 18y ago
        Certain the tragedy of the commons is a real issue, but the FCC and the spectrum control is too far in the regulated direction.
      - nostrademons 18y ago
        Again, I'm not certain that free markets are the answer. It may be that telecom is fated to suck, and the regulated alternative sucks less than the complete laissez-faire one. But I am fairly certain that telecom sucks at least in part because of regulation.
  - 18y ago
Prrometheus 18y ago
Regulatory costs do raise the barrier to entry and push the market towards fewer, larger firms.
anamax 18y ago
> The problem occurs when the regulated do the regulating, whether by infiltrating the government, bribing congress, or actually writing the laws. It's poor form to not mention that said problem always occurs. It's also poor form to not mention that all of the monopolies/oligopolies mentioned were created and/or maintained by govt action. Regulation is one of those govt actions. Regulation gives Walmart an advantage over every Mom&Pop because even at its best, regulation is a fixed cost that Walmart can spread over more transactions. At its typical, Walmart gets a deal that no one else gets.

davidw 18y ago

Really, really, really real free markets never seem to exist, though. So the whole "if only" game doesn't seem like a worthwhile one to me - if there's a failure, it's never, ever, about the market actually failing, it's that it just wasn't free enough? Sorry, back to the drawing board then, and design a system that works in the real world. It's probably not too far off from what we have now, and should be reasonably free, no doubt about that, but it should be designed to muddle along with the muddly creatures that comprise its actors, rather than some sort of idealized system that will never come to fruition. Those apes tend to have both collectivist and individualistic tendencies, and ignoring one in favor of the other is a bad idea.

aswanson 18y ago
What, you mean I can't just project my Platonic ideology onto the real world have it work exacty as I envision? The devil you say, David!
Prrometheus 18y ago
I think the discussion is getting lost here. We recognize that the current system is a partially-free, but heavily-regulated structure. Now the question is, what were the weaknesses in the system? What were the points of failure? Leftists are saying that the problem was that the system was too free. Libertarians are saying that the main problem lies with the corruption and inefficiency of regulation. Neither point is trivial, neither point can be dismissed as ideological rhetoric. There are those libertarians who will always blame the government for every problem until we live under Rothbardian anarchy. You may think that position is idiotic, and you are welcome to do so. However, the leftists who blame every problem on "the unfettered free market" sound equally idiotic to my ears in a world with regulatory agencies with multi-billion dollar budgets and hundreds of thousands of pages of rules controlling trillions of dollars of capital every day. So, don't dismiss all claims of misregulation even if some of the critics are unhinged. After all, if something is wrong there, we would expect it to have large effects. My old firm spent at least a seven-figure number each year to comply with regulatory rules, and it wasn't very large.
- davidw 18y ago

wheels 18y ago

Libertarians and socialists seems to be the internet equivalent of cowboys and indians. Sure, it's been about a week since we played. Ready, set, go! [insert the same discussion as always here]

ardit33 18y ago

your argument is fallacious: Basically saying: Look there was SOME government regulation. The market failed, so it is the fault of regulation. less regulation is the solution. While if you flip the coin you can have: The industry was not regulated enough. Recently there has been a trend to de-regulation, and letting the market free to do what they want to do, and this let us to this huge mess. The markets are made out of people, that have a herd mentality, and only view their short term interest, while ignoring the long term ones. And there are many experiments to prove this: (insert many experiments done on how people would rather have 5$ today, then $20 if few weeks, even though the later is a much better deal). While you fail to mention the fact that the government is not forcing anybody to actually acknowledge the rating agencies ratings, and to invest by them. If the market was smart, why didn't reconginze the problem with the ratings, and avoid it? Another thing that libertarians fail to mention is that in the late 20s, early 30s, a lot of this regulation, or agencies, didn't exist!! Yet the market failed to protect against themselves, and we had the great depression. Please explain that!

mseebach 18y ago
No, his argument isn't fallacious, but yours is a straw man. He is NOT saying that regulation was the problem, and he's not saying that less regulation will solve the crisis. He's saying that blaming libertarianism, free markets and "unfettered capitalism" is a fallacy - simply because the financial market is neither of those.
- ardit33 18y ago
  the argument sounds very similar to communist apologetics saying: "blaming communism on the Soviet collapse is a fallacy, simply because the Soviet Union (and all the communist nations) were never real communist countries like Marx and Engels intended".
- halostatue 18y ago
  The crisis existed largely because existing regulations were loosened, and those that weren't were laxly enforced against people who were gaming the system. The markets in the late 1800s and 1920s were both largely libertarian, free, and unfettered -- and both failed pretty miserably, which is why we have (flawed) institutions like the SEC now.

curiousgeorge 18y ago

Communism would have worked if people didn't try to game the system too. If your philosophy isn't robust enough to deal with the sharp intrusions of reality, complaining about reality isn't the solution.

Dauntless 18y ago

You're just like Enron that always blamed government regulation of the market. Check out this documentary Enron: The Smartest Guys in the Room: http://en.wikipedia.org/wiki/Enron:_The_Smartest_Guys_in_the_Room http://en.wikipedia.org/wiki/Enron:_The_Smartest_Guys_in_the..., it's nice to learn from history. I agree that government regulation can be as dangerous as out of control police force, but libertarians (similar to communists) are completely oblivious (sometimes on purpose) of how absurd their idealistic word is and lack basic understanding of human nature.