Tyler Cowen writes about how politics and regulations contribute to financial crises:
http://www.nytimes.com/2009/09/13/business/economy/13econ.html?_r=1 | FOR years now, many businesses and individuals in the United States | have been relying on the power of government, rather than competition | in the marketplace, to increase their wealth. This is politicization | of the economy. It made the financial crisis much worse, and the trend | is accelerating. | Well before the financial crisis erupted, policy makers treated | homeowners as a protected political class and gave mortgage-backed | securities privileged regulatory treatment. Furthermore, they allowed | and encouraged high leverage and the expectation of bailouts for | creditors, which had been practiced numerous times, including the | precedent of Long-Term Capital Management in 1998. Without these | mistakes, the economy would not have been so invested in leverage and | real estate and the financial crisis would have been much milder. | But we are now injecting politics ever more deeply into the American | economy, whether it be in finance or in sectors like health care. Not | only have we failed to learn from our mistakes, but also we’re | repeating them on an ever-larger scale. .... | President Dwight D. Eisenhower warned of the birth of a | military-industrial complex. Today we have a financial-regulatory | complex, and it has meant a consolidation of power and | privilege. We’ve created a class of politically protected “too | big to fail” institutions, and the current proposals for regulatory | reform further cement this notion. Even more worrying, with so many | explicit and implicit financial guarantees, we are courting a bigger | financial crisis the next time something major goes wrong. .... _______________________________________________ http://mccmedia.com/mailman/listinfo/brin-l_mccmedia.com
