Fareed Zakaria: Markets can't exist without regulation...

[babylonsister]

Big Government to the Rescue

Markets can't exist without regulation. The real trick is to craft good regulations that allow markets to work well.
By Fareed Zakaria | NEWSWEEK
Published Sep 20, 2008


It seemed as if the global economy were headed for the kind of crash we haven't seen since 1929. All the elements for a great financial meltdown and economic depression were in place last week—choked-off credit lines, massively leveraged firms, assets gone bad, sinking mortgages, panicked consumers and paralyzed companies. "What is different," says Harvard economic historian Niall Ferguson, "is that then the federal government and the Federal Reserve did all the wrong things. Now they're mostly doing the right things."

As of this writing, we don't know the details of the plan that is being crafted by Henry Paulson and Ben Bernanke to restore confidence in the U.S. financial markets. It is impossible to be certain that it will work. But the administration and the Federal Reserve were right to intervene in a large and systemic manner. Modern capitalism depends on credit, and credit depends on confidence. By the middle of last week, fear was pervasive and no one was ready to lend money to anyone for any purpose. It turned out that only government intervention could change this psychological paralysis. The lesson of the almost 100 (smaller) financial crises of the past three decades is that only government intervention can stabilize the system when it chokes.

The first task remains to bolster confidence. The next is to devise a workable and flexible plan to dispose of the mountains of assets that the government is taking over. Then, after some thought and analysis, should come the fixes needed to better structure America's massive and complex financial markets.

Some problems require more regulations. Firms that are deemed too large to fail should also be deemed too large to be leveraged at 35 to 1. Some problems require better regulations. For instance, the rule forcing financial institutions to mark their assets down to "market prices"—even when these are distressed prices and firms do not intend to sell the assets any time soon—created a crazy downward spiral. Still other problems require less state intervention. Why should the government insure Fannie Mae's risky profit-seeking behavior?

more...

http://www.newsweek.com/id/160068

[curious one]

1. Please say this to Senator McDeregulation.

[Demeter]

2. Thank You Fareed. I Think We've Figured That Out

all except the Stupids, that is. And the Pirates, who call it a market only when they want to fleece you.