Monday, September 29, 2008

Static Thinking About The Market

I've heard from several people who are arguing that the government must do SOMETHING to help us out of this "crisis" we're in with the credit markets, toxic assets, etc. If the people telling me this were normally of a socialist bent I could understand and I'd let it pass without comment but they're generally very conservative leaning Republican types.

Their thinking goes like this: We need some sort of government intervention in this market because it's so broken that the market can't fix itself. This is what we pay our taxes for. I don't like the bailout but its better than ending up in a depression. They don't care that there's no Constitutional authority for it, the market is too corrupt to be left on its own.

Is the market corrupt? Sure, sometimes. But ask yourself, what's more corrupt, the market or the government? Here's what people don't seem to get; if the government wasn't involved, the market would have a different nature than it does now. If we have a market that the government can so easily usurp, then we don't have a free market to begin with.

The government needs to step away and let it reform itself with a lighter regulatory framework. Risk will be priced in to the investments. If there is fraud, prosecute. But to break stupid regulatory rules that aren't actually fraudulent only inhibits the market and prevents true market reform from taking place.

I'm not just pointing to this crisis. Start thinking in terms of drastic change in the very nature of the market. Think of it as a swap meet for investments. Sure, some people are going to lose, but the market will take care of that by drying up funds for it. The competitors will keep an eye on each other and bark loudly when someone is out of line. The market would actually simplify and be easier for amateur investors to understand.

This is the problem when you're talking about reform of any system. We can only seem to picture tweaking how things are now. We can't imagine such serious change that the entire current model has to be thrown out. Who'd have thought 30 years ago that electronic trading would be available to people sitting at home in their underwear? Who'd have imagined that the transaction cost of a trade would be so low? Despite the heavy regulations, the market found a way.

Change your mode of thinking. Things can change. Government does not have to be involved to fix problems (even this big). We just have to stop accepting the lies and the vomitus spewing that comes from the media and the politicians. They don't know how to control a market, they only know how to destroy one.

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