...the principle behind the Bush administration’s new proposal for financial reform, which will be formally announced today: it’s all about creating the appearance of responding to the current crisis, without actually doing anything substantive....As for the rest, it blithely declares that 'market discipline is the most effective tool to limit systemic risk'...I’ve been disappointed to see some news outlets report as fact the administration’s cover story — the claim that lack of coordination among regulatory agencies was an important factor in our current problems. The truth is that that’s not at all what happened. The various regulators actually did quite well at acting in a coordinated fashion. Unfortunately, they coordinated in the wrong direction. For example, there was a 2003 photo-op in which officials from multiple agencies used pruning shears and chainsaws to chop up stacks of banking regulations....To reverse course now, and seek expanded regulation, the administration would have to back down on its free-market ideology — and it would also have to face up to the fact that it was wrong. And this administration never, ever, admits that it made a mistake.
Ah, yes, the free market will solve everything. Listen, the free market may weed out shady practices, but its method is inherently Darwinistic.
Let me explain: You have trapeze artists, and you want them to be the best so you take away their safety net. Your trapeze artists will be, on the average, better because all the bad ones will have fallen to their deaths. The problem is that when one trapeze artist makes a mistake, he or she harms not only other trapeze artists, but anyone who might happen to be underneath.
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