...damn, I had some questions. Seems like an interesting discussion.
intervention in the financial system is basically a Dangerous Forbidden Technique. Using it creates uncertainty, because it disturbs the status quo and has everyone asking "Well, what prior assumptions about how things work are going to be overturned next?". People invest more when they feel that assumptions on past behaviour and outcomes are likely to be accurate in predicting future behaviour. The more the government intervenes in an economy, the less certain it is that any given investment strategy is going to work and people start pulling their money out and hiding it under the proverbial mattress.
I agree with this, and it's completely valid. But you've ignored the more obvious solution to this problem: don't limit intervention to emergencies.
If they had regular laws against certain dangerous business practices (and it's not like a lot of these cases aren't the same kinds of fraud over and over again, although there will always be new and exciting ways to commit fraud), laws that were actually enforced
in a fairly consistent manner, there would be no uncertainty. Businesses would know what to expect: that the laws would be enforced, rather than the laws not being enforced as is status quo now. Sure this would require an initial period of change, but so would any
change. And I don't think anyone can argue for "no change, ever", not in any realistic sense.
The best analogy I can find is that whenever you try to change the rules of financial regulation you're playing a game of Jenga. And you're advocating drawing out pieces that are very low on the pile. There really isn't a good time to do that.
Someone has to do it eventually. Jenga towers eventually run out of blocks to pull, though they usually collapse well before that point.
Ok, that was torturing the metaphor a bit. Basically put, financial regulation will
change over time, and I don't see any particular reason to choose later over now. Yes, in the short term, such changes might damage the economy. It's a question of long term planning vs. short term gain, I think.
Most of the stuff you guys are talking about has already been tried a long time ago and was found to work extremely poorly compared to the sort of stuff being done now.
I thought the stuff that was tried a long time ago resulted in a bunch of laws being passed to prevent similar collapses in the future, laws that were then not really enforced after a while leading to similar collapses.
It's a depressingly short period of time before the next generation of Gordon Gecko wannabes will have forgotten all about it and start making the same mistakes. Birds fly, cats chase string and bankers simply cannot resist the temptation to shit in their own nest.
And the worst part is, they almost always rise to the top of the corporate ladder because their tactics bring in lots of profits...for a time.
Regulation does not come without cost, however. In particular, it tends to create operating costs and barriers to entry that unfairly privilege big incumbents. Solving every problem by throwing more regulation at it is a great way to create oligopolies and "Too big to fail" situations.
Do all regulations necessarily do this, however? Is this necessarily a bad thing, if the regulations are properly enforced? Maybe banks are an institution it makes more sense to have in larger, centralized but highly regulated units; much like power companies they provide an essential service with a large amount of infrastructure behind it, that almost need to be of a certain size to be of use/profitable.
That's a bit deceptive, we're only talking about regulating banks. Which means you're only talking about less startup banks
, not start-ups in general.
And honestly, how many start-up banks are there, and how many of those don't get bought up fairly quickly by other banks?
Look, you can't make me speak in a logical, coherent, intelligent bananna.