Thursday, November 27, 2008

Objectivism & Economics, Part 9

Role of deregulation in current crisis. David Horowitz, in his blog over at frontpagemag.com provides additional evidence of the role that deregulation has played in the current crisis. Horowitz writes:
The cause of this crisis is a change in the structure of financial markets which allowed hedge fund operators and other sharks to leverage bad loans geometrically. Republicans as well as Democrats supported this system and gave it legislative backing. You could look on the economic collapse as a convergence of socialist and free market (anti-regulatory) ideological manias. Phil Gramm's deregulatory prejudices are at least as responsible for this economic ruin as Barney Frank's ignorant redistributionist fantasies. No one's hands are clean.


Horowitz then quotes excerpts from an interview with Bill Janeway that provides evidence not merely for the role that dereguation played in the fiasco, but also mathematical economics:
It took two generations of the best and the brightest who were mathematically quick and decided to address themselves to the issues of capital markets. They made it possible to create the greatest mountain of leverage that the world has ever seen….It was a kind of religious movement, a willed suspension of disbelief. If we say that the assumptions necessary to produce the mathematical models hold in the real world, namely that markets are efficient and complete, that agents are rational, that agents have access to all of the available data, and that they all share the same model for transforming that data into actionable information, and finally that this entire model is true, then at the end of the day, leverage should be infinite.

Here was the theory. But banking and financial regulations made it impossible to put it into practice. So what was done about it? Academic economists appealed to Washington to have the regulations removed:

Milton Friedman was prevailed upon to write a letter to Secretary of the Treasury Nicholas Brady, Reagan’s Secretary of the Treasury, as a result of which the Chicago Board was cleared to trade stock index futures, all cash settlement. There is another story in which Alan Blinder on the Democratic side played a similar role, by providing the academic legitimacy for the markets and for the integration into the fabric of finance of the derivatives that instrumented modern financial theory. That enabling role … created a tool through which you could price things that did not heretofore trade. Puts and calls did not trade.

In brief, what happened is that these new financial tools, brought into being through the obtuse cleverness of econometrics, enabled the free market to generate a nearly infinite supply of credit. The so-called “funny money” that free market ideologues wish to blame the Fed for was largely created by the free market! Government regulation had nothing to do with it. On the contrary, it was the absence of government regulation that allowed these non-banking financial institutions to go create a massive credit bubble in the nineties, thereby driving up the Stock Market to five times its value in twelves years.

37 comments:

HerbSewell said...

This still doesn't have a damn thing to do with Objectivism. The creation of this "funny money" was given sanction by the people of this country. It happened because people wanted it to happen. Government regulations are still created by the people. The difference between governmental regulations and economic practices is that regulations are carried out by force, taking away people's liberty, one of the unalienable rights given to every man of this country. It's illogical to create a government that forces people not to do irrational economic practices because the people make of the government in the first place. The only moral purpose of the government is to create an environment where people can trade services and exchange products in by mutual consent and in mutual self-interest, though those two are almost never mutually exclusive. This is to be done by finding the most efficient way possible to protect the rights of all men. Essentially, all economic regulation comes down to this: "Reason has failed, we must use force!" This gives the looters, or the federal government, an intellectual impunity, with their only defense for abhorrently immoral actions being that they were doing for self-less reasons, regardless of the fact as to whether their decisions were right or wrong, rational or irrational, sanctioned or unsanctioned.
The middle man that is the government in economic regulation has the power to cripple an economy. There is no reason that is not mystical in nature that gives any support to the notion that the government is more adept at economic regulation than the people are choosing what to and what not to invest in. As I said before, it is the people themselves who elect their representatives who then make the regulations. To say that the people we elect somehow know what's best for us more than we do is elitism, and is simply a contradiction, due to the fact that the reason they have their position in the first place was because the people themselves thought that they deserved to have the power to create laws which forbid certain actions among citizens. The only thing the government has to do in order to maintain a civilization is to create an institution that bars all forms of initiation of force, direct or indirect against the people of the country it presides over.

Red Grant said...

___________________________________

The creation of this "funny money" was given sanction by

the people of this country.

It happened because

people wanted it to happen.


Government regulations are still created by the people. - HerbSewell
----------------------------------- The difference between governmental regulations and economic practices is that regulations are carried out by force, taking away people's liberty, one of the unalienable rights given to every man of this country. - HerbSewell
___________________________________





So people themselves took away their liberty?


Does this mean then you believe people should not have the right to create regulation?

HerbSewell said...

No to both.

HerbSewell said...

Again, the single differentiation here I'm highlighting specifically is that a government uses force to motivate people it presides over why the people themselves use reason.

Red Grant said...

___________________________________

The creation of this "funny money" was given sanction by

the people of this country.

It happened because

people wanted it to happen.


Government regulations are still created by the people. - HerbSewell
----------------------------------- The difference between governmental regulations and economic practices is that regulations are carried out by force, taking away people's liberty, one of the unalienable rights given to every man of this country. - HerbSewell
___________________________________





So people themselves took away their liberty?


Does this mean then you believe people should not have the right to create regulation? - Red Grant

-----------------------------------

No to both. - HerbSewell
___________________________________



Government regulations are still created by the people. - HerbSewell
-----------------------------------

The difference between governmental regulations and economic practices is that

regulations are carried out by force, taking away people's liberty,

one of the unalienable rights given to every man of this country. - HerbSewell
-----------------------------------
Government regulations are still created by the people. - HerbSewell
___________________________________

Red Grant said...

___________________________________

So people themselves took away their liberty?


Does this mean then you believe people should not have the right to create regulation? - Red Grant

-----------------------------------

No to both. - HerbSewell
___________________________________




Then who took away people's liberty?


Who should have the right to create regulation?

HerbSewell said...

You may be misunderstanding me when I said that the people created government regulations. I was trying to refute the fallacy that people are too stupid to regulate themselves so the government should step in. The key difference is that people can only legally deal with each other by reason while the government uses force.
"Potentially, a government is the most dangerous threat to man's rights: it holds a legal monopoly on the use of physical force against legally disarmed victims."

"Then who took away people's liberty?"

Politically, you really can't take away someone's liberty, in which I meant to imply that the government took away our liberty by ignoring it. Technically, we still have it. We as American citizens are born with liberty as secured to us by the Declaration of Independence, the government created by the people simply chooses to ignore it.

"Who should have the right to create regulation?"

It depends what you mean by regulation. If you mean the right to dictate how people should live their lives then no one but the lives of the individual in question can have that right. If by regulation you mean a pre-defined, specifying the non-permissible actions of men in order to protect their rights then that right is given to the people, in which the people have a moral duty to find the most efficient way to create such regulations.

Red Grant said...

___________________________________

You may be misunderstanding me when I said that the people created government regulations.


I was trying to refute the fallacy that people are too stupid to regulate themselves so the

government should step in. - HerbSewell
___________________________________



There's no misunderstanding here. This is explicitly what you had said earlier:

___________________________________

The creation of this "funny money" was given sanction by the people of this country. It happened because people wanted it to happen. Government regulations are still created by the people. - HerbSewll
___________________________________



Does this mean then you believe the "funny money" should have been created because people wanted it to happen?

or

should not have been created even though that's what people wanted it to happen?




___________________________________

"Then who took away people's liberty?" - Red Grant
-----------------------------------

Politically, you really can't take away someone's liberty, in which I meant to imply that the government took away our liberty by ignoring it. Technically, we still have it. We as American citizens are born with liberty as secured to us by the Declaration of Independence,

the government created by the people

simply chooses to ignore it. - HerbSewell
-----------------------------------
Government regulations are still created by the people. - HerbSewll
___________________________________





So, in the end, does this mean then you believe the people themselves are responsible for the loss of liberty, after all they are the ones who created the government and the government regulations in the example you yourself have provided above?



___________________________________

If by regulation you mean a

pre-defined, specifying the non-permissible actions of men

in order to protect their rights then

that right is given to the people,

in which the people have a moral duty to find the most efficient way to create such regulations. - HerbSewell
-----------------------------------
The creation of this "funny money" was given sanction by the people of this country. It happened because people wanted it to happen.

Government regulations are still created by the people. - HerbSewell
___________________________________





So does this mean then you believe "funny money" was created in order to protect people's rights by the people themselves?

HerbSewell said...

Yes there was a misunderstanding or you wouldn't have asked the question.

Unless some person's rights were encroached upon, there's nothing wrong with the creation of "funny mone." Clearly, "funny money" is a stupid financial practice, but people have the right to be stupid.

Yes.

No.

Red Grant said...

___________________________________

Yes there was a misunderstanding or you wouldn't have asked the question. - HerbSewell
___________________________________




Hardly, I've asked the question in order for you to see your own contradiction.

I want everyone to see HerbSewll's usual self-contradicting statements.

___________________________________

The creation of this "funny money" was given sanction by the people of this country. It happened because people wanted it to happen.

Government regulations are still created by the people. - HerbSewell
-----------------------------------
The difference between

governmental regulations

and economic practices is that regulations are carried out by force, taking away people's liberty, one of the unalienable rights given to every man of this country. - HerbSewell
-----------------------------------
Government regulations are still created by the people. - HerbSewell
___________________________________






___________________________________

So people themselves took away their liberty?


Does this mean then you believe people should not have the right to create regulation? - Red Grant

-----------------------------------

No to both. - HerbSewell
-----------------------------------

So, in the end, does this mean then you believe

the people themselves are responsible for the loss of liberty,

after all they are the ones who created the government and the government regulations in the example you yourself have provided above? - Red Grant
-----------------------------------



Yes. - HerbSewell

___________________________________



In the first instance, Herb is saying people didn't take away their own liberty,

yet, in the second instance, Herb is saying people are responsible for the loss of their own liberty.



If that is not contradiction, then what is it?




___________________________________

So people themselves took away their liberty?


Does this mean then you believe people should not have the right to create regulation? - Red Grant

-----------------------------------

No to both. - HerbSewell
-----------------------------------
Unless some person's rights were encroached upon, there's nothing wrong with the creation of "funny mone."

Clearly, "funny money" is a stupid financial practice, but

people have the right to be stupid. - HerbSewell
___________________________________




In the first instance, Herb is saying people should not have the right to create regulation.

Yet, in the second instance, Herb is saying people have the right to create regulation, (even stupid ones at that.)



Again, another clear example of your contradiction.

HerbSewell said...

There was no contradiction, ergo you misunderstood what I said and are still misunderstanding what I said.

Also, please try not to make ad hominems.

"In the first instance, Herb is saying people should not have the right to create regulation.

Yet, in the second instance, Herb is saying people have the right to create regulation, (even stupid ones at that.)"

You completely misunderstood me there.

The Creation of "Funny Money" dos not equate to regulation.

Red Grant said...

___________________________________

"In the first instance, Herb is saying people should not have the right to create regulation.

Yet, in the second instance, Herb is saying people have the right to create regulation, (even stupid ones at that.)" - Red Grant
-----------------------------------

You completely misunderstood me there.

The Creation of "Funny Money" dos not equate to regulation. - Herb
___________________________________



Below is the usual, half-baked, self-contradicting statement from Herb that he had said earlier on this topic.

-----------------------------------
The creation of this "funny money" was given sanction by the people of this country. It happened because people wanted it to happen.

Government regulations are still created by the people. - Herb
___________________________________




If he didn't mean creation of the "funny money" didn't equate to regulation, then

why did he even both to include the statement,

"Government regulations are still created by the people"

in his argument that the creation of "funny money" happened because that's what people wanted it to happen?

Red Grant said...

___________________________________

There was no contradiction, ergo you misunderstood what I said and are still misunderstanding what I said. - Herb
___________________________________




I will recap below Herb's self-contradicting statments and my responses to them.


___________________________________

The creation of this "funny money" was given sanction by the people of this country. It happened because people wanted it to happen.

Government regulations are still created by the people. - HerbSewell
-----------------------------------
The difference between

governmental regulations

and economic practices is that regulations are carried out by force, taking away people's liberty, one of the unalienable rights given to every man of this country. - HerbSewell
-----------------------------------
Government regulations are still created by the people. - HerbSewell
___________________________________






___________________________________

So people themselves took away their liberty?


Does this mean then you believe people should not have the right to create regulation? - Red Grant

-----------------------------------

No to both. - HerbSewell
-----------------------------------

So, in the end, does this mean then you believe

the people themselves are responsible for the loss of liberty,

after all they are the ones who created the government and the government regulations in the example you yourself have provided above? - Red Grant
-----------------------------------



Yes. - HerbSewell

___________________________________



In the first instance, Herb is saying people didn't take away their own liberty,

yet, in the second instance, Herb is saying people are responsible for the loss of their own liberty.



If that is not contradiction, then what is it?




___________________________________

So people themselves took away their liberty?


Does this mean then you believe people should not have the right to create regulation? - Red Grant

-----------------------------------

No to both. - HerbSewell
-----------------------------------
Unless some person's rights were encroached upon, there's nothing wrong with the creation of "funny mone."

Clearly, "funny money" is a stupid financial practice, but

people have the right to be stupid. - HerbSewell
___________________________________




In the first instance, Herb is saying people should not have the right to create regulation.

Yet, in the second instance, Herb is saying people have the right to create regulation, (even stupid ones at that.)



Again, another clear example of your contradiction.

11/29/2008 08:33:00 PM




___________________________________

Also, please try not to make ad hominems. - Herb
___________________________________




But I didn't. My argument included showing your own self-contradicting statements.


Here's the definition of ad hominem.

___________________________________

An ad hominem argument, also known as argumentum ad hominem (Latin: "argument to the man", "argument against the man") consists of replying to an argument or factual claim by attacking or appealing to a characteristic or belief of the person making the argument or claim,

rather than by addressing the substance of the argument or producing evidence against the claim.

http://en.wikipedia.org/wiki/Ad_hominem
___________________________________




This means, of course, Herb doesn't know what ad hominem means.

Just like he doesn't know what he's talking about as I have proved above using his own words.



I rest my case. This should show Herb for what he really is.

HerbSewell said...

"If that is not contradiction, then what is it?"

It's a misunderstanding by you.

"I rest my case. This should show Herb for what he really is."


That right there is, by definition an ad hominem. You are attacking me. This argument isn't about me, it's about my position.

I've tried several times to clear up any misunderstanding by you of what I have written, but you've ignored them.

Red Grant said...

___________________________________

An ad hominem argument, also known as argumentum ad hominem (Latin: "argument to the man", "argument against the man") consists of replying to an argument or factual claim by attacking or appealing to a characteristic or belief of the person making the argument or claim,

rather than by addressing the substance of the argument or producing evidence against the claim.

http://en.wikipedia.org/wiki/Ad_hominem - Red Grant
----------------------------------

This argument isn't about me, it's about my position. - Herb
-----------------------------------




___________________________________

So people themselves took away their liberty?


Does this mean then you believe people should not have the right to create regulation? - Red Grant

-----------------------------------

No to both. - HerbSewell
-----------------------------------
Unless some person's rights were encroached upon, there's nothing wrong with the creation of "funny mone."

Clearly, "funny money" is a stupid financial practice, but

people have the right to be stupid. - HerbSewell
___________________________________




In the first instance, Herb is saying people should not have the right to create regulation.

Yet, in the second instance, Herb is saying people have the right to create regulation, (even stupid ones at that.)



Again, another clear example of your contradiction.

11/29/2008 08:33:00 PM




___________________________________

"In the first instance, Herb is saying people should not have the right to create regulation.

Yet, in the second instance, Herb is saying people have the right to create regulation, (even stupid ones at that.)" - Red Grant
-----------------------------------

You completely misunderstood me there.

The Creation of "Funny Money" dos not equate to regulation. - Herb
___________________________________



Below is the usual, half-baked, self-contradicting statement from Herb that he had said earlier on this topic.

-----------------------------------
The creation of this "funny money" was given sanction by the people of this country. It happened because people wanted it to happen.

Government regulations are still created by the people. - Herb
___________________________________




If he didn't mean creation of the "funny money" didn't equate to regulation, then

why did he even bother to include the statement,

"Government regulations are still created by the people"

in his argument that the creation of "funny money" happened because that's what people wanted it to happen?

11/30/2008 02:27:00 PM




___________________________________

There was no contradiction, ergo you misunderstood what I said and are still misunderstanding what I said. - Herb
___________________________________






___________________________________

The creation of this "funny money" was given sanction by the people of this country. It happened because people wanted it to happen.

Government regulations are still created by the people. - HerbSewell
-----------------------------------
The difference between

governmental regulations

and economic practices is that regulations are carried out by force, taking away people's liberty, one of the unalienable rights given to every man of this country. - HerbSewell
-----------------------------------
Government regulations are still created by the people. - HerbSewell
___________________________________





___________________________________

There was no contradiction, ergo you misunderstood what I said and are still misunderstanding what I said. - Herb
___________________________________







___________________________________

So people themselves took away their liberty?


Does this mean then you believe people should not have the right to create regulation? - Red Grant

-----------------------------------

No to both. - HerbSewell
-----------------------------------

So, in the end, does this mean then you believe

the people themselves are responsible for the loss of liberty,

after all they are the ones who created the government and the government regulations in the example you yourself have provided above? - Red Grant
-----------------------------------



Yes. - HerbSewell

___________________________________



In the first instance, Herb is saying people didn't take away their own liberty,

yet, in the second instance, Herb is saying people are responsible for the loss of their own liberty.



If that is not contradiction, then what is it? - Red Grant
-----------------------------------

It's a misunderstanding by you. - Herb
___________________________________






___________________________________

There was no contradiction, ergo you misunderstood what I said and are still misunderstanding what I said. - Herb
___________________________________







___________________________________

The middle man that is the government in economic regulation has the power to cripple an economy. - Herb
-----------------------------------
The creation of this "funny money" was given sanction by the people of this country. It happened because people wanted it to happen.

Government regulations are still created by the people. - Herb
___________________________________





___________________________________

There was no contradiction, ergo you misunderstood what I said and are still misunderstanding what I said. - Herb
___________________________________






___________________________________

There is no reason that is not mystical in nature that gives any support to the notion that the

government is more adept at economic regulation

than the people are choosing what to and what not to invest in. - Herb
-----------------------------------
Government regulations are still created by the people. - Herb
------------------------------------------
The creation of this "funny money" was given sanction by the people of this country. It happened because people wanted it to happen. - Herb
-----------------------------------Clearly, "funny money" is a stupid financial practice, but

people have the right to be stupid. - HerbSewell
___________________________________





___________________________________

There was no contradiction, ergo you misunderstood what I said and are still misunderstanding what I said. - Herb
___________________________________

HerbSewell said...

Would you please stop quoting the same things again and again? I really don't care to look through all of it to see the same points made by you of quotes by me that you have already quoted several times, just to try to find something new that you actually added to the conversation. I've already seen them before. It's very annoying and I would appreciate it if you would stop doing that.

"Below is the usual, half-baked, self-contradicting statement from Herb that he had said earlier on this topic."

Now that is an ad hominem. You are attacking how I deliver my statements, how I compose my statements, and how I communicate outside of the parameters of my argument and this discussion.

Red Grant said...

___________________________________

So people themselves took away their liberty?


Does this mean then you believe people should not have the right to create regulation? - Red Grant

-----------------------------------

No to both. - HerbSewell
-----------------------------------
Unless some person's rights were encroached upon, there's nothing wrong with the creation of "funny mone."

Clearly, "funny money" is a stupid financial practice, but

people have the right to be stupid. - HerbSewell
-----------------------------------




In the first instance, Herb is saying people should not have the right to create regulation.

Yet, in the second instance, Herb is saying people have the right to create regulation, (even stupid ones at that.) - Red Grant



-----------------------------------

You completely misunderstood me there.

The Creation of "Funny Money" dos not equate to regulation. - Herb
___________________________________



Below is the usual, half-baked, self-contradicting statement from Herb that he had said earlier on this topic.

-----------------------------------
The creation of this "funny money" was given sanction by the people of this country. It happened because people wanted it to happen.

Government regulations are still created by the people. - Herb
___________________________________




If he meant creation of the "funny money" didn't equate to regulation, then

why did he even bother to include the statement,

"Government regulations are still created by the people"

in his argument that the creation of "funny money" happened because that's what people wanted it to happen?









___________________________________

There was no contradiction, ergo you misunderstood what I said and are still misunderstanding what I said. - Herb
___________________________________






___________________________________

The creation of this "funny money" was given sanction by the people of this country. It happened because people wanted it to happen.

Government regulations are still created by the people. - HerbSewell
-----------------------------------
The difference between

governmental regulations

and economic practices is that regulations are carried out by force, taking away people's liberty, one of the unalienable rights given to every man of this country. - HerbSewell
-----------------------------------
Government regulations are still created by the people. - HerbSewell
___________________________________





___________________________________

There was no contradiction, ergo you misunderstood what I said and are still misunderstanding what I said. - Herb
___________________________________







___________________________________

So people themselves took away their liberty?


Does this mean then you believe people should not have the right to create regulation? - Red Grant

-----------------------------------

No to both. - HerbSewell
-----------------------------------

So, in the end, does this mean then you believe

the people themselves are responsible for the loss of liberty,

after all they are the ones who created the government and the government regulations in the example you yourself have provided above? - Red Grant
-----------------------------------



Yes. - HerbSewell

___________________________________



In the first instance, Herb is saying people didn't take away their own liberty,

yet, in the second instance, Herb is saying people are responsible for the loss of their own liberty.



If that is not contradiction, then what is it? - Red Grant
-----------------------------------

It's a misunderstanding by you. - Herb
___________________________________






___________________________________

There was no contradiction, ergo you misunderstood what I said and are still misunderstanding what I said. - Herb
___________________________________







___________________________________

The middle man that is the government in economic regulation has the power to cripple an economy. - Herb
-----------------------------------
The creation of this "funny money" was given sanction by the people of this country. It happened because people wanted it to happen.

Government regulations are still created by the people. - Herb
___________________________________





___________________________________

There was no contradiction, ergo you misunderstood what I said and are still misunderstanding what I said. - Herb
___________________________________






___________________________________

There is no reason that is not mystical in nature that gives any support to the notion that the

government is more adept at economic regulation

than the people are choosing what to and what not to invest in. - Herb
-----------------------------------
Government regulations are still created by the people. - Herb
------------------------------------------
The creation of this "funny money" was given sanction by the people of this country. It happened because people wanted it to happen. - Herb
-----------------------------------Clearly, "funny money" is a stupid financial practice, but

people have the right to be stupid. - HerbSewell
___________________________________





___________________________________

There was no contradiction, ergo you misunderstood what I said and are still misunderstanding what I said. - Herb
___________________________________

Red Grant said...

___________________________________

Essentially,

all economic regulation

comes down to this: "Reason has failed, we must use force!"

This gives the looters, or the federal government, an intellectual impunity, with their only defense for abhorrently immoral actions being that they were doing for self-less reasons, regardless of the fact as to

whether their decisions were right or wrong, rational or irrational,

sanctioned

or unsanctioned. - Herb
-----------------------------------
Government regulations are still created by the people. - Herb

The creation of this "funny money" was given

sanction

by the people of this country. It happened because people wanted it to happen. - Herb
-----------------------------------
Clearly, "funny money" is a stupid financial practice, but

people have the right to be stupid. - HerbSewell
___________________________________





___________________________________

There was no contradiction, ergo you misunderstood what I said and are still misunderstanding what I said. - Herb
___________________________________







.

HerbSewell said...

I really wish you would just make your points instead of quoting things I've already read and you're already quoted before.

""Government regulations are still created by the people"

in his argument that the creation of "funny money" happened because that's what people wanted it to happen?"

I already explained that.

Red Grant said...

___________________________________

As I said before, it is the people themselves who elect their representatives who then make

the regulations.

To say that the people we elect somehow know what's best for us more than we do is elitism,... - Herb
-----------------------------------
The difference between

governmental regulations

and economic practices is that

regulations

are carried out by force, taking away people's liberty, one of the unalienable rights given to every man of this country.
-----------------------------------
Government regulations are still created by the people. - Herb
-----------------------------------
... but

people have the right to be

stupid. - HerbSewell
___________________________________





___________________________________

There was no contradiction, ergo you misunderstood what I said and are still misunderstanding what I said. - Herb
___________________________________

HerbSewell said...

I honestly don't know what point you're trying to make. You've already posted these quotes of me several times. If you want to make a point, just say it instead of quoting me so many times.

Anonymous said...

Nyquist: In brief, what happened is that these new financial tools, brought into being through the obtuse cleverness of econometrics, enabled the free market to generate a nearly infinite supply of credit. The so-called “funny money” that free market ideologues wish to blame the Fed for was largely created by the free market! Government regulation had nothing to do with it. On the contrary, it was the absence of government regulation that allowed these non-banking financial institutions to go create a massive credit bubble in the nineties, thereby driving up the Stock Market to five times its value in twelves years.


It's okay to say hedge funds and derivatives are creatures of the free market. However, this massive credit bubble was made mainly by banks, Fannie Mae, and Freddie Mac and government pressure to expand home-ownership. These are all government-made or government-dependent creatures. Banks are highly dependent on the Fed and FDIC. The Fed is the handmaiden of government and the latter's fiat money. One result of deregulation was to allow banks to expand credit in an unprecedented way -- allowing them to create "structured investment vehicles" or "collateralized debt obligations."

A more apt term for this state of affairs than "free market" is "mixed economy."

gregnyquist said...

Anon: "It's okay to say hedge funds and derivatives are creatures of the free market. However, this massive credit bubble was made mainly by banks, Fannie Mae, and Freddie Mac and government pressure to expand home-ownership."

I'm not sure that the credit bubble was "mainly" created by the banks and the GSE's. This is a widespread notion, particularly among free market ideologues. It is true up to a point: but only up to a point. What it fails to recognize is that part of the credit bubble that was created before the GSE's got into the act. What the GSE's and the housing bubble did is allow the wildcat financing spawned in the nineties go on another ten years, thus making it much worse.

The point is, while a good portion of the mess can be blamed at unwise interference in the market, this doesn't mean that we would be better off if there were no regulations at all. To oppose reserve requirements for derivative securities, for example, on the basis that violates the laissez-faire ideology is not a sensible approach. The alternative isn't merely no regulation on one side and a bunch of bad regulations on the other. On the contrary, what is needed is a few sensible regulations designed to create conditions in which competition will be as effective as possible.

HerbSewell said...

"To oppose reserve requirements for derivative securities, for example, on the basis that violates the laissez-faire ideology is not a sensible approach."

There's no ethical reason for the government to step in to regulate the underlying assets of securities. There's also no reason to believe that the government would be more proficient in making a banking system to ensure reserve requirements for derivative securities than a bank would. A government can only force people at the end of a gun to act in a certain way. The free market must use reason as a means to deal with people. If a bank does not participate in self-regulation then people will just invest their money some place else that will because doing do is a rational business practice. If people do not then that is their problem. People have the right to invest stupidly, while banks have the right to offer mediocre services if they are not violating any contract.

Red Grant said...

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The alternative isn't merely no regulation on one side and a bunch of bad regulations on the other. On the contrary, what is needed is a few sensible regulations designed to create conditions in which competition will be as effective as possible. - Greg
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Indeed.




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A government can only force people at the end of a gun to act in a certain way. - Herb
-----------------------------------
The creation of this "funny money" was given

sanction by the people of this country.

It happened because people wanted it to happen.

Government regulations are still created by the people. - Herb
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There was no contradiction, ergo you misunderstood what I said and are still misunderstanding what I said. - Herb
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HerbSewell said...

Honestly Grant, what are you trying to prove? Clearly, I think you should've learned by now that I'm not going to agree or possibly even understand this particular point, considering you've quoted me on this exact issue about twenty-one times.
Face it: I'm not going to respond if all you're going to do repeat the same posts again and again like a broken record.

Anonymous said...

Nyquist: To oppose reserve requirements for derivative securities, for example, on the basis that violates the laissez-faire ideology is not a sensible approach.

Where did you get this idea? Surely not from me. Reserve requirements for derivatives are compatible with a "laissez-faire ideology" to prevent fraud and unilateral breaking of a contract. Laissez faire advocates advocate reserve requirements for banks, don't they?

Reserves could be required simply by the derivatives being traded on an exchange, as most derivatives now are. Letting a bunch of politicians regulate them would invite another calamity.

HerbSewell said...

"Laissez faire advocates advocate reserve requirements for banks, don't they?"

Exactly. Anybody who invests in a bank who doesn't have a contractual standard for their own reserves deserves what they get. What I was saying to Graig was there is no reason for the government to force reserves if they are not explicitly stated in contracts, under the premise that's it's illogical to assume that the government is more efficient at running banks than banks are.

At the possibility of being torn to shreds by a bunch of Kantians, (this term is just a stupid as "Randoids"): "...capitalism is the only system that functions in a way which rewards rationality and penalizes all forms of irrationality..."

Red Grant said...

___________________________________

There's no ethical reason for the government to step in to regulate the underlying assets of securities. - Herb
-----------------------------------
The creation of this "funny money" was given sanction by the people of this country. It happened because people wanted it to happen. - Herb
-----------------------------------
Government regulations are still created by the people. - Herb
-----------------------------------
There's no ethical reason for the government to step in to regulate the underlying assets of securities. - Herb
___________________________________










___________________________________

There was no contradiction, ergo you misunderstood what I said and are still misunderstanding what I said. - Herb
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HerbSewell said...

Are you continuously posting the same thing just to have the last word?

Andrew said...

Herb-

"This still doesn't have a damn thing to do with Objectivism."

The point is that the crisis was partially caused by free-market ideology. Which Objectivism seems to have inherited from the Austrians, possibly the Chicago School. Oddly enough Rand came to severe disagreements with Murray Rothbard, who effectively brushed her off as a cult figure. And, she did not seem to appreciate Milton Friedmans utilitarian defenses of Capitalism. Considering him to be an ineffective defender of Capitalism.

The defense of free-market ideology as an all encompassing virtue of society seems to deny middle ground and prevent sensible regulation.

"A true self-regulating market will somehow never be true or self-regulating enough. These arguments resemble the rhetoric of medieval scholastics. Those who use them seem to be on a mission to rescue their favorite abstract theory from its latest catastrophic defeat at the hands of reality." - John Ralston Saul

gregnyquist said...

HerbSewell: "There's no ethical reason for the government to step in to regulate the underlying assets of securities."

The so-called "ethical" angle of this question is not really the focus of this post. The post deals with the sources of current economic crisis. While Objectivists provide ethical rationalizations for their defense of non-intervention, they also tend to insist that the current-crisis is caused entirely by government intervention in the market, that deregulation had nothing to do with it. It is this view that I am challenging in the post. If Objectivists want to argue: "We don't care if a specific regulation (such as requiring a reserve requirment for derivatives) might help stop an economic catastrophe; we regard all such regulations, regardless of their effects, as morally wrong and want nothing to do with them"—if that is to be the Objectivist line, then fine: at least it doesn't overstep the facts. I wonder, however, who they are going to persuade with a line reasoning such as that. We should all become advocates of pure laissez-faire regardless of the consequences! Trying making converts with that one! This is just the sort of thing that has caused laissez-faire ideology to fall into such disrepute. It is also why advocotes of the free market must distance themselves from such ideological pretension.

Andrew said...

Greg Nyquist-

"This is just the sort of thing that has caused laissez-faire ideology to fall into such disrepute. It is also why advocotes of the free market must distance themselves from such ideological pretension."

Of course the extreme free-market ideologues do not seem to realize this or care. And ironically enough it will be this ideological dogmatism that will lead to a damaging self-inflicted philosophical error. This error will likely spark a force of action from society against the free-market ideology and in turn damage the goals of the sensible advocate of a balanced free-market. Societies philosophical shift will serve to legitimize socialist ideology due to the apparent lack of pragmatic middle ground concerning markets.

"The most perfidious way of harming a cause consists of defending it deliberately with faulty arguments"

Nietzsche- The Gay Science.

Red Grant said...

___________________________________

There's no ethical reason for the government to step in to regulate the underlying assets of securities. - Herb
-----------------------------------
The creation of this "funny money" was given sanction by the people of this country. It happened because people wanted it to happen. - Herb
-----------------------------------
Government regulations are still created by the people. - Herb
-----------------------------------
There's no ethical reason for the government to step in to regulate the underlying assets of securities. - Herb
___________________________________










___________________________________

There was no contradiction, ergo you misunderstood what I said and are still misunderstanding what I said. - Herb
___________________________________








___________________________________

Are you continuously posting the same thing just to have the last word? - Herb
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No, just to make sure that everyone sees you for what you are.


Of course, if someone thinks you are capable of brilliant thinking,

that would show him for what he really is also.



BTW, this doesn't necessarily have to do with one's idealogical position.

But it has everything to do with either intellectuall laziness or knuckle-headedness for that matter.

HerbSewell said...

To RedGrant.

Why does it matter that people see that you quoted me over twenty times? You aren't making an argument. I've already explained how you misunderstood me. It seems that you're more interested in trying to prove me wrong and actually prove whatever point I've tried to make wrong.

Red Grant said...

Here's Madoff's take on regulation.



http://www.finextra.com/community/fullblog.aspx?id=2299

Red Grant said...

http://www.bloomberg.com/apps/news?pid=20601087&sid=avJ43XHySeVs&refer=home