Sunday, 19 October 2008

Liberterians should share the blame....

. The link to this article was posted on Liberal Democrat Voice but it first appeared on Slate and is authored by Jacob Weisberg. Charlotte Gore responds in typically belligerent fashion and manages to totally avoid answering any of the arguments that the author actually makes. Weisberg's central argument is that it is the failure of the hedge fund, Long Term Capital Management that proved beyond any doubt that markets cannot self-regulate;

"After LTCM's collapse, it became abundantly clear to anyone paying attention to this unfortunately esoteric issue that unregulated credit market derivatives posed risks to the global financial system, and that supervision and limits of some kind were advisable. This was a very scary problem and a very boring one, a hazardous combination."

As an aside this happened in 1998 and very nearly brought the financial system to it's knees then so it's nice to see the stability that the market provides isn't it? LTCM's hopes that the interest rates on different government bonds would converge were scuppered when the Russian government defaulted on it's bonds and investors started buying US Treasury bonds. Interest rate differences between bonds increased sharply and LTCM which had borrowed heavily from other companies had to be bailed out by the Federal Reserve.

Weisberg provides a link to a Washington Post article which details how attempts to regulate the derivatives market were ambushed by believers in self-regulation. Now, these 'heroes' want to let bad banks go to the wall, something that Weisberg says;

"would deliver a wonderful lesson in personal responsibility, creating thousands of new jobs in the soup-kitchen and food-pantry industries."

He believes that the libertarians;

"heroic view of capitalism makes it difficult for them to accept that markets can be irrational, misunderstand risk, and misallocate resources or that financial systems".

Something that he feels can be rectified by 'pragmatic' regulation by governments. However, if this is one thing that this crisis will prove it is the markets will always subvert any attempts to regulate them and that regulation cannot prevent an inherent tendency to crisis.

4 comments:

Charlotte Gore said...

You wouldn't be making personal comments about me would you Darrell? ;)

Darrell G said...

Me? Never :)

Charlotte Gore said...

I've actually addressed the point now, although other people had already done it: Libertarians advocate Free Banking. What we've had was Thatcherite banking. ;)

Darrell G said...

Charlotte,

Not once in you blog did you even quote from the article you were attacking....you *never* mentioned LTCM....the prosecution rests...