Perchance to Dream
posted by Deven Desai
Even if you are overwhelmed by the past week’s events (and really there is reason to be), Jonathan Lipson’s thoughts about the recent maneuvers in the world of finance is well-worth the read. Lipson points out that “selective socialism”, the way in which some institutions are bailed out and others are not, is “is opaque, unpredictable and unfair.” In addition, these moves may not solve the problems. BUT unlike some of the commentary on this topic, Lipson explains that deregulation is a big part of how we woke up to a world that might require such acts:
The policy problem involves the choice in the 1970s to embark on a massive program to deregulate many industries. It is difficult to point to many success stories here. With the possible exception of certain telecom sectors (i.e., cell phones), few of the promised benefits of deregulation materialized. Electricity is more expensive, cable television is (generally) pretty lame, and transportation hasn’t exactly improved. And, while lightened regulation has been good for executives and hedge fund managers, average investors aren’t doing nearly so well. And they’re likely to do a lot worse in the near term.
The last idea about the smaller investor reminds me of a story on NPR about how the American dream of home ownership may have set-up or perhaps fed into the lending practices of recent years. Before folks come up with binary thoughts on this one, please note that the idea here revolves around both sides of the equation feeding off each other. Sure we want a world where no one overreaches; it does not exist. Add in how the home moves us as Americans, (as the NPR story points out that we love the idea of our home, a place where we can paint the walls any color we like, listen to our music, in short our castle) and not only we Americans but the world looks on in some awe at how can achieve this society. That may explain why (if anyone remembers) the ownership society resonated with people. Whether its approach was sound or it ever really lived up the claims is for others to parse.
Here we can say that the current mess affects the large corps (which perhaps Dave, Nate and others are correct should be allowed to die) but it also hammers many individuals. Bailing out any group that arguably should have known better may be unfair. But when we are starting to have tent cities, pop up the problem becomes one for all of us. We try to fix it and then try to set up a system that reduces the chances of having it occur again. That too may be a dream (certainly our learning curve about the right amount of regulation is flat if not negative) and as some suggest large swings may be more the norm given the way the economy operates in general. Whether or not models can account for the economy today or more pragmatic approaches can better control for the uncertainty is a question for another time. Still, as Lipson points out, no matter what we do, it seems that there should be “some regulatory reality check at some point” on the new approaches. If we do not appreciate this point, we may find that in reality nothing is too big to fail.
September 20, 2008 at 11:57 am
Posted in: Corporate Law, Politics
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Responses (1)
C Smith - September 20, 2008 at 1:46 pm
>The policy problem involves the choice in the 1970s to embark on a massive program to deregulate many industries.
What of the ignorance of the 10th Amendment that had the Fed mucking about with individual homeowners in the first place?
Roll the clock back to FDR for the roots of the problem, please.
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