If a smattering of libertarian ideas can bring it [the system] all down, then the problem isn’t really libertarian ideas, is it? If the integrity of the economy in your preferred model requires a high level of ideological conformity, you might think to reconsider the wisdom of harnessing it so thoroughly to democratic political institutions meant to accomodate pluralism.
That’s not the part where he is really upset. He’s also upset here and here.
Maybe the time to get really, really, mad about the lack of libertarian principles in American conservatism was 5 years ago?
And here:
http://leiterreports.typepad.com/blog/2008/10/the-end-of-libe.html
C
For libertarianism to be discredited in this current economic crisis, wouldn’t someone have to show that (1) regulation could have prevented the mispricing of mortgage backed securities, (2) that regulation didn’t create incentives for securitization to begin with, and (3) prove that sometimes bubbles in the market don’t just happen no matter what a government does. Am I missing something, or does failure to do all three of these things mean that someone attempting to discredit free markets does not really grasp what they are saying? Or, are we just supposed to stop considering reason and yield to an uninformed public about an issue that some of the most thoughtful people in the world admit to not understanding so well. Perhaps pausing for a while to consider what we know, what we don’t, and what we need to learn would be a good idea? It seems to me that people trying to discredit libertarianism on the basis of what we know are doing so with a stream of reasoning no different than one that would find that just because a rooster crows at the same time the sun comes up, it is the rooster that has caused the sun to rise. You’ve got to come to the table with more than that. Will Wilkinson is right to be upset.
http://economistsview.typepad.com/economistsview/2007/10/the-role-of-sec.html
“The GSEs Fannie Mae and Freddie Mac accounted for a more substantial 40% of MBSs issued in 2006…The remaining 56% of MBSs issued in 2006 were packaged by private sector financial institutions…From 1996 through 2006, the share of subprime and Alt-A MBSs rose from 47% to 71% of total private sector MBS issuances…”
Subprime debt exploded in ’05 and ’06. As far as I can tell, that’s because the private sector wanted to provide it.
Coupled with the mass CDS…well…you see what I mean
Deregulation isn’t always a good thing
Robert,
What regulation would you sugggest that would have prevented the excessive risk taking and mispricing of MBS’s? Why would you trust the gov’t to know more about this than those who are trading them? What kind of knowledge would they need and what would they do with it? Why is what happened with these securities not simply an accident? Does the 40% of all sub-prime loans offered by Fannie and Freddie imply that they did nothing wrong? Are there other regulations that may have created the incentives for securitization of mortgages in the private sector? No one is saying that deregulation is always a good thing, but people are saying that it’s important to understand as best we can what has caused our current problems. I think a deeper analysis is necessary than one that simply cries for more regulation. Too many people are engaged in claims with no supporting evidence. Your post is not evidence that deregulation is to blame. I think you’ve fooled yourself if you believe otherwise.
It’s great. Everyone’s throwing around the CDS term like a) they actually know what they are talking about and b) like it is an actual problem. Lehman was the largest bankrupcy on record. The CDS issued on Lehman represented nearly 1% of all CDS notional in the entire market. So, when it collapsed, it could have been a big problem. But guess what? No one failed. People had put up collateral, the auctions went off without a hitch, and everything was fine.
Do you even know how to price a CDS? Do you even know what the default leg is? If not, then don’t blather about something you have no clue about.
“For libertarianism to be discredited in this current economic crisis, wouldn’t someone have to show…”
No, they’d just have to keep repeating the talking points about overpowering libertarian influence until they can get back to chortling about the obvious libertarian irrelevance.
Sorry, but this stuff has always reminded me of the 60′s and 70′s communists saying “the problem is that communism has never been fully realized” and ignoring Stalin and Mao.
“It’s great. Everyone’s throwing around the CDS term like a) they actually know what they are talking about and b) like it is an actual problem. Lehman was the largest bankrupcy on record. The CDS issued on Lehman represented nearly 1% of all CDS notional in the entire market. So, when it collapsed, it could have been a big problem. But guess what? No one failed. People had put up collateral, the auctions went off without a hitch, and everything was fine.
Do you even know how to price a CDS? Do you even know what the default leg is? If not, then don’t blather about something you have no clue about.”
After hundreds of billions of liquidity provided to the banks, they were able to do this, without a hitch.
Ryan,
I am not sure what kind of regulation would have been required to avert all of this. I can’t claim to know enough about all the mechanisms at work to say what exact regulation would have been required. I do feel confident enough in saying that the private sector played a much larger role in generating this crisis than the public, and I similarly feel confident in saying that government policy does generally impose costs of some kind. So my conclusion is that some sort of regulatory mechanism could have existed to mitigate this problem.
Someone please explain to me how democracy could be any other way than for politicians to jump on the bandwagon?
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