On Oct 27, 2008, at 1:12 PM, John Williams wrote: >> *huge* "if" that, in all the times we've experimented with laissez- >> faire market capitalism, has never been borne out in reality. Do we >> really need to do this one more time expecting different results, or >> can we agree that there is a need to have *some* government >> involvement in this kind of trading to prevent exactly this sort of >> irresponsibly risky behavior? > > LOL. You're hilarious today. The government can save us! Despite > all evidence to the contrary, it will be different this time! Worship > the government! Government is God!
Actually, there is one point I do need to make here, so I'll respond to at least that extent, ignoring the hyperbole. One thing that should be obvious is that within any financial system, the institutions that trade in that system (particularly the larger ones, whose activities have direct and immediate impact on the behavior of the market as a whole, as their share of the feedback effects is proportionally larger) endanger the stability of the system as a whole if they don't maintain reserves sufficient to cover the worst case scenario of the risks they take. If they have cash reserves enough to cover their losses, they still lose money, but they don't go bankrupt, and they don't threaten the stability of other institutions. In most forms of financial markets where investment involves risk, the institutions (brokerage houses, mostly) are required to maintain those reserves by federal law, and file reports regularly with the government to provide data with which the overall health of the market can be determined to at least some degree by analysis. What primarily caused this most recent crisis was a combination of a completely unregulated side market in a derivative so indirectly linked to actual financial transactions it was essentially gambling on securities, with little to nothing in the way of reserves to cover losses, which was covered up by accounting so haphazard that the reinsurers like AIG who were theoretically covering the risk were all reinsuring each other, and no one was actually holding the ball, and *no one knew* until it was too late. My point is that that sort of playing fast and loose with the system is what we inevitably get when there isn't *some* degree of regulation involved. Are you seriously suggesting that we should deregulate the entire financial system to that extent? Or would you agree that mandating at least enough reserves in the system to where we don't get this domino effect when the inevitable escalation of risk reaches the point where the system can't withstand it anymore might actually be a good idea, "interference" though it may be? _______________________________________________ http://www.mccmedia.com/mailman/listinfo/brin-l
