Thursday, September 24, 2009

Markets: Heal Thyself

There is a common theme to a large number of posts on this blog.

The market crash of 2008 exposed a large number of faults in our economy. For example, the crash proved that short selling did not help regulate the market as the short sellers claimed. Short selling accelerated the market crash.

We also learned that employer based insurance magnifies the hardships on workers. When people lose their jobs they discover that all of that money stuffed into their health plan vanishes.

We learned that the various re-insurance schemes in the housing, banking and bond markets turn local risks into systemic economic risks.

The 2008 economic collapse exposed systemic risks. The free market is the best way to solve known problems.

The free market would solve these problems if people talked about the source of the problems. For example, the Medical Savings and Loan would give employees equity in their health care. They could lean on this equity if they lose their job. The Open Source Real Time eXchange shows that short selling is the creation of an artificial gap created in a financial transaction. Close the artificial gap created by regulators and the problem goes away.

Our housing bubbles exist because people buying houses with fixed interest loans. Simply changing mortgages from interest loans to shared equity liens and the problem of people losing homes in an economic downturn would subside.

The free market can solve the problems.

Notice that the talk in the media and in political circles does not examine the roots of any of our economic problems.

The political scene is about using economic crisis for power grabs.

As we look at our economic history, we find that the institutions that blew up during the 2008 economic collapse were largely the creation of political intrigue. Emloyer based insurance gets massive tax subsidies which make more stable alternatives untenable.

The re-isurance schemes that keep crashing our economy (Freddie Mac, Fannie Mae, FSLIC, credit default swaps, etc..) were all created in past power grabs spurred by past economic crisis.

To break this cycle of economic collapses that result from poorly conceived political power grabs, we need to get people talking about free market alternatives to the instable economic institutions created by political reforms of the past.

There are free market solution!

To save the free market, people need to move beyond this shrill political debate and talk up the free market solutions, because the political solutions on the table are all fundamentally flawed and will do nothing but hasten America's pace on the road to serfdom.

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