Deregulation -- a rant

We don't have a free market. In fact, a free market is almost impossible given the nature of our money. That's why deregulation doesn't work. It just replaces one set of people regulating the market with another set regulating the market.

To see how we could actually attain and retain a free market please read Invisible Hand. It will help you to understand thousands of things which just don't make sense if you really think about it.

Like, in a nation which a surplus of food and housing, why are there so many hungry and homeless people? The answer to that question is not what you think it is. How can we justify allowing children to go hungry and homeless? What did those children do to deserve that treatment? The fact that their parents certainly share the blame does not justify their being denied food and a place to live.

Read Invisible Hand to understand this an a thousand other mysteries.

There is no such thing as a "free market," and there never has been. The fact is, without a public commons, there simply IS no market. SOMEBODY has to set up laws, law enforcement, streets, communications and power grids, water and sewer systems, etc. in order for any commerce to take place.

This is the grandest myth of capitalism. The "free market capitalists" want you to believe that commerce just magically appeared, without any public support for it to happen. That is simply not the case.

Another frightful fact of capitalism is that the sole purpose of it is for corporations to earn a profit. A corporation has no particular consideration of providing for the good of the commons, unless there is a profit to be gained from that. Ultimately, the only reason for a corporation to exist is to earn a profit, and the sad fact, as has been proven out over and over and over again, is that they are more than willing to do whatever is necessary, whether moral, ethical, or legal or not, to achieve and increase their profits.

If moving their manufacturing to a third world country in order to take advantage of a slave labor force and unrestricted access to raw materials, as well as limited or no oversight of pollution can bring more profits, guess what the corporation will do?

The end result of unrestricted capitalism is destruction of the very society that created it, and we're beginning to see that now. It's almost impossible to even begin to quantify the massive scale of human suffering that capitalism has caused, because we only have our eyes opened when something massive, like the 3 mile island or love canal poisonings, the S&L collapse of the 80's, the near collapse of wall st. in the early 00's, the impending near collapse of major financial institutions, etc.

Those incidents make the news, and we all learn just how destructive unbridled capitalism can be, when allowed to "regulate themselves." What we do NOT hear about, generally, is how much human suffering and death is caused by the countless, and often long-hidden incidences of environmental poisonings. How many cancers, for instance, are the direct result of some industrial pollution at some point? I would venture to guess that the majority of cancers of today are caused by poisoning of our environment by corporate capitalists.

Of course, these capitalists are insulated from their own catastrophic failures by existing within the structure of the "free market," which means that when major institutions collapse, when massive poisoning has taken place, when markets are exploited to the point of destruction, it is the PUBLIC that is called upon to rescue the nation.

One might ask, where are the "free market capitalists" when such a collapse occurs? When greedy, corrupt bankers steal $1 trillion from our S&L's, where is the "magical free market capitalist" who jumps in to save us? How about when our major banking institutions collapse as a result of deregulation allowing them to engage in risky investments in the "free market?" Where is the "free market capitalist" that's jumping in to rescue the home mortgage industry right now ?

The same can be said when colossal environmental pollution, caused by corporate abuses, are discovered. Why aren't the "free market capitalists" jumping forward to reclaim the land, water, and air that they've destroyed with their abusive, profiteering tactics?

Oh yeah...capitalists are only supposed to reap profit from a capitalistic society. It's the PUBLIC that's supposed to pay for the profiteer's messes and make sure that society somehow survive their abuses. Some "free market."

I never understand the argument against regulation. people who admit that profit is their only motive, who admit they will do anything to make money, saying "trust us to act in everyone else's best interest."

When a bank is failing, it should fail. However, when there is help out there any failing bank should most likely try to find that help or just be bought up by another bank.

Regulations by the way are set up by the Government to help stop the Greed and Fear factors in people that show up from time to time.

Great article and some pretty good comments.

"When a bank is failing, it should fail."

Here's the problem today, however...

Part of republican deregulation was to ignore Sherman anti-trust laws, and allow massive, unrestrained mergering to take place over the past couple decade. This has resulted in massive corporate entities that are so overbearing that a single entity can now be considered a "vital" part of the economy, which means that, if one is allowed to fail, it could very easily topple the entire economy.

This is a severe threat to our national security, but beyond that, it is a way for the "free market capitalists" to truly hold us all hostage. They can continue recklessly abusing the markets and gambling with their money, knowing full well that if they should manage to destroy their corporation in their greed obsession, the public will be forced to pick up the shattered pieces, and those that orchetrated the collapse can waltz away with billions in wealth, and move onto head yet another massive corporate entity, and do the same thing with it.

What people don't realize about these corporations nowadays is that the CEO's and executive officers of many of the largest companies sit on each other's boards, effectively creating "mergers" that are hidden from sight. In sitting on each other's board, these CEO's can manufacture strategies for lobbying that will benefit BOTH companies, and therefore further enrich BOTH CEO's pulling the strings.

And, this is the ultimate "good ol' boy's club." You don't become a CEO simply because you're smart, well-educated, and capable of proving yourself a leader. You become a CEO by having been connected by someone else who is already a CEO, or is at least connected to a very high level board member of a very high profile company.

The entire thing has become nothing more than a corrupt vehicle to shovel mountainous piles of cash to these handful of elitists. It's diseased and perverse, and it's destroying our democracy, and it's high time we all began to recognize it for the threat that it really is.

Industry continually shows that it is not able to police itself. Regulation is necessary.

So, looking forward, Freddie Mac and Fannie Mae closed well down on Friday. Will regulators step in on Monday to avert problems there, or will they stabalize now that one player in that market has been taken over?

Will Congress look to increase regulation?

Does Sen Gramm still think this is a "mental recession"?

Larry, you make some excellent points on how "free" our market isn't. To my mind, the inequities in our society are a moral evil ... and the fact that those who "take" on the upper end without remorse or (generally) without consequence are not accountable is a sign of impending decline.

Clark -- Thanks for reminding about the relationship between what is happening now and what anti-trust legislation was designed to avoid. This is not only about deregulation in recent history, it is also about refusing to acknowledge the wisdom in the historical codex of regulations. For its faults, the Sherman Anti-Trust Act provisions would have helped avoid some of the Machiavillian manipulations a handfull of corporations have been able to make that encouraged this decline.

Debra, I couldn't agree more. The government has moved us all to a world where the corporations rule us, while those in power do whatever they think will benefit their buddies. So while the banks ran amok over the financial markets, the hawks went to war in the Middle East, which made lots of money for Haliburton and Exxon. Reagan wanted to get the government out of the way so that the rich and powerful could mow down the weak and poor

While I know know many who would disagree with you about Reaganomics in the short term, Ann, I suspect history will largely validate that assessment. It is too bad.

The Fear factor currently in Freddy and Fanny is not that they have enough capital to get through mortgages that will fail which is estimated at around one per cent. They have enough capital to get through that. The fear is that the stock value will go down because of the short sales. There is no problem with the bond side of the firms.

A stock value of zero is where the fear is at. Not the fear that the Bonds will fail, which they won't.

We'll see next week where Freddy and Fanny go.

I agree that the Freddie/Fannie fear is in share price, Richard. What I wonder is how much a significant hit will erode consumer confidence beyond the mortgage industry.

I don't know, however, as fear is off-set by greed when the price looks too good, then we'll probably see. This is a wait and see sort of thing. in three years it tho will be forgotten, just as what exactly was Long Term Capital all about. I have forgotten.

The mortgage crisis and the deregulation that led to it has , Phil Gramm's, McCain's economic adviser's fingerprints all over it.

McCain and the Bush family have ties to both the S&L bailout of the late 80's and to the present mortgage debacle. Check out the link : Where Credit Is Due: A Timeline of the Mortgage Crisis.

http://www.motherjones.com/news/feature/2008/07/where-credit-is-due-timeline.html

Yes Baby J, I remember the Silverado Bank collapse in the late 80s -- lived in Colorado then (Ned Bush's bank). It was one of many that collapsed as part of a land/mortgage problem (remember Phoenix Capital)?

The reason that the Savings and Loan thrifts failed was directly due to deregulation. The thrifts were not capable of making international loans but deregulation allowed them to and they believed they were priming themselves to make money. It's a shame that industry does not regulate itself but it doesn't.

Deregulation allowed them to couch (excuse me, participate in) many activities that would not have previously been allowed. Development was one of the issues in this area.

Joe, you are absolutely right -- it is a shame industry will not regulate itself. In the computer area we are inundated with the term "best practices". Every industry has them ... too bad they rarely make it into the final product intact.

db10.

Power corrupts, and absolute power corrupts absolutely.

Interesting article.

I'm here viewing your content, returning comments, and leaving a 10! Hope this helps make your Holiday season brighter. Merry Christmas.

Capital markets are unstable. In the past there was no way to make them stable. But today we have computer power that can be used to make them stable.

By using the greater computer power of today we can have a much higher turn over of capital in the capital market. This higher turnover will make the market harder to game or control and the market will no longer have the unstable run ups or declines. Who can change or control the market when say 20% of the capital is trading each day?

So now that we have the compute power to provide for all these transactions that will smooth out the market how do we force people to turn over at a rate of 20% a day? Easy, put a cap gains tax of 0% (zero) on all gains of 7 days or less and put a cap gains tax of 90% of all gains of more than 7 days.

The likes of Yahoo, Micosoft and/or Sun Micro Systems will give us the systems that will provide automated software agents to support turning over one's investments every 7 days (based on the specs you give the agent).

A system like this will make the financial markets work as smoothly as the local fruit market.

Programmed trading, IMHO, is part of the problem. It is not investing in many cases, just juggling numbers. We could build regulation into this, but haven't as yet.

Programmed trading of a type can also be a solution. When you have all people trading every 7 days (programed or not) all of the bad effects of programed trading will not happen. You cannot have a built up demand to sell or a built up demand to by if there is always a heavy demand both to buy and to sell. If the price is a little to high you just wait a little while for more sellers to come into the market. If the price is a little to low you just wait a little while for more buyers to come into the market.

I am seriously concerned with the way programmed trading has made it too easy to flip stocks, however, creating market just to create market. This can lead to some serious volitility that hurts the average investor.