Letting the System Learn

Although she’s added depth to her explanation, Froma Harrop is still trying to find the individual responsible for our country’s financial predicament:

The 2000 Commodity Futures Modernization Act revived the bucket-shop bet. It was a rider attached to an 11,000-page appropriations bill hours before Congress planned to leave for Christmas recess. Page 262 forbade states to ban or regulate financial derivatives.
The Republican Congress passed the legislation, and Democratic President Bill Clinton signed it. Whatever Alan Greenspan wanted he got, which was capitalism unlocked from its regulatory chains.

She apparently has yet to hit upon the idea that government policies implying economic rescue distorted the system of incentives on which Greenspan’s philosophy relied.
Be that as it may, Harrop’s column brought to mind something that I don’t believe I’ve seen argued explicitly: A free system learns, often by trial and error. Isn’t heavy regulation, in that case, somewhat redundant? I mean, won’t banks and investment firms and other such players be more inclined to implement the safeguards that Greenspan assumed they would now that they’ve seen the consequences? It seems to me that childproofing the economic playroom will only allow for innovative thinkers to find new ways to profit from the absence of risk.

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Ken
Ken
12 years ago

Boy, are you naive. Phil Gramm attached the rider re-legalising bucket shops. These operations were shut down by the federal government aqnd the states for good reason==they were just betting parlors.
where there is no regulation, there is rampant financial crime. How many thousands of years do you so called conservative have to absorb before you get the joke.
I have worked for rich men. They never have enough. They need to be restrained by civil and criminal law. People with a lot to lose are, in fact, restrained by useful examples of their peers going to jail, as happened in the 1930s.

Justin Katz
12 years ago

But the problem, here, is new. Our financial future is much more thoroughly linked to investments — as with, e.g., 401Ks. Of course there will always be rich people seeking more at all costs, but in this case even organizations that ought to have been staid and overly cautious moved forward with the understanding that the government ultimately would throw out a safety net.
Those with such responsibilities now have reason to be more circumspect.

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