Waylaid Dialectic

May 1, 2010


Filed under: Random Musings — terence @ 10:11 am

At the bottom of a post equating anger against Wall Street with racism, Bill Easterly offers the following update:

UPDATE 4/30 4:09pm

Great comment from a very knowledgeable finance professional:

The “shoot the bankers” strategy is a diversionary tactic that avoids dealing with who allowed this to happen … the FED and SEC, who are being given MORE power and MORE discretion and LESS oversight, and Congress … who were bought off by bankers and the GSEs.  If I were a banker, I would say fine … have a good shout, satisfy the public, but don’t really change the rules that allow me to make lots of money while gambling with other people’s money and while enjoying a government guarantee.

I’ve got nothing to add about the post itself: in response to comments Easterly subsequently concedes it was wrong-headed. (And good for him – one of his many strengths is an ability to admit when he is wrong.)

The whole blame the FED and SEC for the crisis narrative (as reflected in the update) utterly gets my goat though. Blaming them is a bit like heading out to sea in a small dinghy, with a bad weather forecast, having to be rescued at huge expense, and then blaming the coastguard for the whole affair because they didn’t outlaw small dinghies in the first place.

No one forced the large investment banks to do what they did. No one compelled them to believe that risk had been vanquished and that housing prices could go up forever. They. Acted. Rashly. They caused the crisis to happen, they weren’t forced into it.

The worst thing about the blame the SEC and FED narrative is that it all too often gets extended into something like this:

It wasn’t the banks who caused this crisis, it was the regulators. We can’t trust the regulators, therefore we shouldn’t strengthen them.

Therefore what? We should just let markets solve problems? Because they did that oh so well in 2008…


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