Posted by
Andrews on Wednesday, April 08, 2009 4:42:47 PM
Once again, I have cause to object to the WSJ editorial pages. While many of their editors are stalwart free marketeers, it seems,
like much of the conservative movement, recent events have turned some of the Journal's editors into
apologists for regulation. For example,
Holman Jenkin's most recent article.
Much of the article is unobjectionable, an endorsement of conservative investing and having a stake in one's firm, stuff that sounds like mom, baseball and apple pie or 1950's vintage business management texts. However, we then get to the "times are so different" segment that always precedes a call for regulation. In this case, an argument that investors are not risk-averse enough:
That is, these investors have an appetite for risk that doesn't suit
our regulatory system, which presumes some firms too big to fail. And
they'd quickly fire any CEO as "risk averse" as Mr. Stephens proudly
professes to be.
And, just as
an early WSJ editorial argued because derivatives are "too different", Jenkins finds this "new" lack of risk aversion a reason to call for regulation, though his formulation is remarkably forthright:
The solution, one way or another, is likely to be government's heavy hand to suppress risk-taking on Wall Street.
Of course, this whole argument is a load of... um... garbage. Does he really think our current investors are more risk-friendly than those of the 1990's dot-com bubble? Or of the 1920s? There are always risk averse investors and risk prone investors. That is the nature of the market. If there weren't, there would be no disagreement over the relative values of stocks and no one could make trades. Differing risk tolerances are part of what drives the market.
Then again, why should I bother arguing that point when his whole premise is so off the mark. The market's problem is not that the investors were insufficiently regulated. Ask anyone who has filed for an IPO, or obtained a broker's license, or even had to take accounting courses how "under regulated" the market is. We have more regulation than we need.
No, our problem is
a simple one, and the same that caused the busts of the late 1990's, and 1929 for that matter. The government printed too much money. And, in so doing, kept interest low, money cheap, and investments misdirected. With cheap money, investment flowed into unprofitable enterprises, businesses misunderstood their profit and loss structure, capital was paid out as dividends, and the whole market eventually collapsed. It has happened over and over, all over the world, only our attachment to central banking and the government's attachment to debt keeps us from recognizing it. Fiat currency and Keynesian economics inevitably causes a boom-bust cycle, and we are on the bust side of one.
So please, no more calls for regulation, nor arguments about bad practices on Wall Street. Even had every investor been an angel and the market run from Capitol Hill, we still would have seen this happen. When the currency is divorced from a limited commodity and the government allowed to inflate at will this is the inevitable outcome.
POSTSCRIPT
Rather than link to every article I have written about inflation, I decided to refer readers to my earlier article "
A Thought on the Clinton Surpluses" (also linked in the text above), the links in that post will lead you to almost everything I have written on the subject.
Correction: Sorry to all early readers who noticed I linked to everything
except the article which was the subject of the post. I have corrected that now.