Monday, December 28, 2009
John Cassidy Fails in His Critique of Markets
I explain at Mises today:
While driving my son to school one morning, I heard a National Public Radio interview with John Cassidy, author of the new book How Markets Fail. Fortunately, we got to the front of the line before Cassidy let out the zingers. A few minutes earlier, and my son would have seen Daddy lose his temper.
Cassidy first caricatures the case for free markets, then tries to demonstrate the hypocrisy of a "free-market" financial bailout. Yet his arguments obviously don't bear on whether markets fail or need government supervision. Indeed, Cassidy himself acknowledges that what happened at the end of the Bush administration was anything but the free market.
Comments:
The other half of the argument blaming free markets is always that it was the reult of "deregulation" which, in reality, never happened. The actions of Fannie Mae, Freddie Mac were, of course, proactive regulatory action; the reinvigoration of the CRA was of a similar vein (albeit very limited in direct impact); and changing of tax laws with regard to real estate only facilitated where the Fed-created bubble manifested itself.
What remains is the fact that none of the instruments that became more attractive to investors as the Fed radically altered risk pricing signals (mortgage backed securities, credit default swaps, derivatives) were at any time deregulated from the period when unaltered (or rather less distorted) market conditions worked just fine in preventing them from getting out of hand. And the only deregulation of note that did occur (the removal of Glass-Steagal barriers between banking and insurance - similar to the ones between banking and S&Ls that caused the S&L crisis) had nothing whatsoever to do with the crisis itself.
I know. I'm preaching to the choir, but the argument rarely stops at the failure of free markets and always culminates in a demnad for less deregulation/more intervention.
What remains is the fact that none of the instruments that became more attractive to investors as the Fed radically altered risk pricing signals (mortgage backed securities, credit default swaps, derivatives) were at any time deregulated from the period when unaltered (or rather less distorted) market conditions worked just fine in preventing them from getting out of hand. And the only deregulation of note that did occur (the removal of Glass-Steagal barriers between banking and insurance - similar to the ones between banking and S&Ls that caused the S&L crisis) had nothing whatsoever to do with the crisis itself.
I know. I'm preaching to the choir, but the argument rarely stops at the failure of free markets and always culminates in a demnad for less deregulation/more intervention.
# posted by 
: December 28, 2009 at 11:34 PM
: December 28, 2009 at 11:34 PM
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# posted by : December 30, 2009 at 2:54 AM
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