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Politics : American Presidential Politics and foreign affairs -- Ignore unavailable to you. Want to Upgrade?

To: DuckTapeSunroof who wrote (29727)	10/3/2008 4:27:39 PM
From: TimF	Read Replies (2) \| Respond to of 71588

A liars market where people understand that it is a liars market, causes people to be more careful, and makes it unlikely that the market will explode, unless there is some belief that the government or some other third party will bail you out should the market fail. But since the operators in the market didn't understand the market nearly as well as they thought they did, because it was "new and complex", and they hadn't seen it in bad times. They kept expanding the market. If they understood the market well, and if there where not pervsere incentives from government related to the market, it would not have grown so much, or been so carelessly executed. The people participating in, and sometimes depending on these markets didn't understand them so well, regulators would probably on the whole have understood them even less. Market regulation is more likely to be better at dealing with risks that have already caused blowups, its not so good at avoiding new types of blowups. IMO "NO ASSIGNED REGULATOR" isn't a state of affairs that deserves all caps in most contexts, and isn't inherently dangerous. All sorts of unregulated markets (at least in the sense of formal government regulation directly about the market or a type of market operations) have worked well for long periods of time, while all sorts of regulated or even highly regulated markets have failed. Which doesn't mean that I'm against all regulation of financial markets, or specifically this type of operation, prudent regulation can help things, its just really hard to have prudent regulation when something is so new and complex, and also its hard to have prudent regulation when the market is related to one with so much political interest (many swaps are directly or indirectly associated with mortgages, and most politicians cared more about expanding home ownership than they did about financial prudence).