Wednesday, December 31, 2008

The Bacon's been Fried

There is a growing consensus that financial tools like credit default swaps, short selling, federally-re-insured mortgage backed securities, hedge funds, leveraged ETFs and other creations of the modern financial world require greater regulations.

The 2008 market implosion was dramatic. Lots of paper money was destroyed.

The modern progressive thinkers, who oddly were the inventers of these failed financial tools, wish to push the conclusion that failure of these weird financial tools prove what they've known all along that the American experiment in freedom is a failure, the free market is a failure and that wee need a new social order akin to the progressive regimes in Cuba, Venezuela, El Salvador, Haiti, North Korea and Iran.

My parting shot for 2008 is that all of the financial instruments that appear to require greater regulation should never have existed in the first place.

The best example is naked short selling. Our corrupt financial system created a network of centralized brokerages in cahoots with a secretive organization called the DTCC. The insiders in this group can dramatically increase the float of any publicly traded company on a whim. Naked short selling undermines the ability of companies to re-invest the capital that they have built up through the years.

Short selling itself is anti-market. Short selling is a creation of regulators that allow people to sell the equity in companies that they do not own.

A large number of regulatory failures came to light during the economic collapse. The message of these regulatory failures, however, is not that the free market failed, but that Americans were a bunch of chumps for having faith in financial tools that are dependent on the integrity of regulators.

Rather than more regulation, we need to return to a financial regime based on the direct ownership of equity and away from the leveraged and federally backed financial system favored by the elite.

Ending the Year on a Sick Pun

On an end note, I was devasted to hear that one of my favorite actor had his bacon fried in the Madoff scheme. Tremors was the best goll-darn movie every made. It shows the grim reality of life in Southern Utah, dagnabbit. Footloose captures the deep inner conflicts utopian dreams of Northern Utah ... Oh My Heck.


Scott Hinrichs said...

I used to buy the line that short selling was an efficient method for the market to discover appropriate prices. Then I started thinking, in what other situation is it legal (and acceptable) to sell something you do not own? Selling something you don't own generally results in a prison term. Why is short selling an exception to this?

Anonymous said...

Kind of odd then that most deregulation of these options has been fostered by Republicans then huh?

Sort of makes your logic quite a bit less logical.

Fun to watch conservatives "reach" though. Less work for those of us with common sense when deciding who to listen to (and then vote into office). Stand strong you free-marketeers! I'm sure this is just a speedbump.

Or... Reaganomics was a crock, and only those who acknowledge it (and in doing so finally take the advice of those - of both partisan persuasions - who really understand the markets, and not just campaigning for re-election.

You sir, have taken the bait.

y-intercept said...

I think Republicans and Libertarians are chumps. Republicans simply support the concept of deregulation, and they foolishly let the left define the form of the deregulation.

If you do contribution searches on the various miscreants exposed during the financial crash, you will find many peg the donation limits to Democratic candidates each election cycle.

The vast majority of professors who teach people how to behave in the market are on the left.

The real danger to our country is Marxist ideology. Marx did not define communism. He defined a perversion of the free market called capitalism. His trick was to define capitalism in ways guaranteed to collapse.

And like blithering idiots, Republicans and Libertarians stand in a line to defend the Marxist view of capitalism.

This unfortunate political legacy (the division between left and right) has created an absolutely toxic political environment.

BTW: I have deep hopes that Obama can break us out of this idiocy.

Once upon a time the Democrats were the ones opposed to Conservation. They were the base of the KKK and wrote to Jim Crow laws. Democrats do a better job of casting aside their bad ideas and are adept at stealing the best ideas from the Republicans. However, most still adhere religiously to the dialectics despite the widespread harm done by the dialectics.

y-intercept said...

Note, I wrote a post called Regulating Conservatives about the dichotomy between regulation and deregulation and the role that deregulation plays in the Conservative philosophy.