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Against Monopoly

defending the right to innovate

Monopoly corrupts. Absolute monopoly corrupts absolutely.





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A Perfect Storm, the financial version

How do you engineer a perfect financial storm? We just witnessed how.

First: the Fed Chairman, the Secretary of the Treasury and the President (BPB, from now on) all go on TV stating that a great disgrace will fall upon the country should Congress not do X. X is, strangely, something that, prima facie, looks very advantageous for people and firms that one would not err too much by characterizing as "close" to BPB.

Second: neither BPB nor their associates, nor anyone supporting X (in particular, not the "friends" that should receive advantages from it) explain what the danger is, how it works, what will cause what and how did we get to this. They insist on the matter being super urgent and dramatic, no discussion please, there is no time. Just to make things look even more dramatic, the future .5(President) (well, make that .3(President)) suggests to suspend the presidential campaign in light of the national emergency ...

Third: during the weekend the anxiety increases amid tense and obscure bargaining among the parties. In the meanwhile, various proposals Y, Z, K, ... (all addressing the same issues as X but less favorable to the "friends") are dismissed outright. It is, BPB keep repeating, either X or nothing. Trust us, we know better.

Fourth: well, we just witnessed it today. In the midst of the panic caused by the refusal of Congress to just "buy X as is", the friends (and possibly also the foes, at this point) of BPB run for cover and the markets collapse (silver lining: price of oil also did). Now the scare is complete, everybody is in panic, and no one understand what is going on and why ... The opening of Asian markets a few hours from now is awaited in great fear. The sense of historic drama is palpable.

Prediction: the plan will be forced down the throat of Congress between tonight and tomorrow. Now something really needs to be done, hence we will do X.

The perfect storm, once again. These guys are skillful, that much I admit.


Comments

Here's an interesting post, which is linked to at the www.divisionoflabour.com blog.

link here

Michele:

I hope you are wrong.

Bill:

I like the stallion analogy, because it is appropriate. However, as ranchers and cowboys know, you work with the horse and eventually develop a trust and rapport with the horse. Controlling the stallion without the trust and rapport never works. Further, sometimes the stallion will go off in unexpected directions. The appropriate response is to gently reassert your leadership, not beat the horse or put it into a smaller corral.

Unfortunately, it is our government that refuses to learn the new tricks, not the stallion. Regulation can be good and useful, particularly when there are a pattern of abuses, but over-regulation merely makes things more unpredictable and in the current case delays market response to actual economic conditions.

The moral of the story: The current market correction is necessary and healthy, and the government should avoid stepping in unless there is an actual crisis instead of a made-up one.

The link provided by Bill to "Scapegoating Markets" is a good article. What troubles me is that if we want a free market to work effectively we need to have responsible self-control.

The article correctly notes that greed has existed forever and analogized it to gravity. The obvious implication, greed is a perpetual force that we have to live with. But there is a difference, an improperly designed airplane will not fly. Greed on the other hand can be designed to be hidden. So our financial system was able to fly (using innovative accounting) for a while, before the house-of-cards was exposed and collapsed.

I doubt any of us want a socialist economy, however it continually astonishes me that most free market advocates (despite the mantra of responsibility) never actually call for self responsibility. The unintended consequence of not acting responsibly when those actions hurt citizens is the imposition of State control on your actions. Much like a parent taking away the keys to the car when a teenager gets too many tickets.

One could also say that the financial institutions, in their unfettered greed, killed the goose laying the golden eggs.


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