Politics and Profits: Business and the 2008 Election

I imagine this is the kind of news story that appeared frequently during the Panic of 1907.  Not to overlook the South Sea Bubble of 1720.

Actually, what the writer, Anthony Faiola, is really saying is, the U.S. can’t argue the case for free markets anymore:

Given that the United States has held itself up as a global economic model, the change could shift the balance of how governments around the globe conduct free enterprise. Over the past three decades, the United States led the crusade to persuade much of the world, especially developing countries, to lift the heavy hand of government from finance and industry.

But the hands-off brand of capitalism in the United States is now being blamed for the easy credit that sickened the housing market and allowed a freewheeling Wall Street to create a pool of toxic investments that has infected the global financial system. Heavy intervention by the government, critics say, is further robbing Washington of the moral authority to spread the gospel of laissez-faire capitalism.

Perhaps so.  But is it really accurate to say the US doesn’t regulate the financial industry?

The culprits, as far as I understand things, include government intervention in the housing market via Fannie/Freddie and Congressional pressure on those entities to loosen credit for homebuyers; government again, via the Fed, pushing for low interest rates in order to postpone politically inconvenient slowdowns; and then Wall Street for creating a passel of financial instruments that nobody, including financial leaders, fully understood.

The case for regulation of such instruments, i.e. not allowing them to exist, would have been stronger if we could have had faith that the government overseers would have been able to detect their flaws sooner than Wall Street executives would have.

The case for regulation now is a lot stronger — but what regulations? Candidates talk about “more regulation” as if it was something you could measure, like having “more vegetables” in your diet. Without specifics, it’s a meaningless panacea.