Thoughts, essays, and writings on Liberty. Written by the heirs of Patrick Henry.

“The purpose of separation of church and state is to keep forever from these shores the ceaseless strife that has soaked the soil of Europe with blood for centuries.”     James Madison

December 22, 2008

Quote Of The Day

by Brad Warbiany

I was at lunch with colleagues today, and the question was raised as to why regulators couldn’t see the financial crisis coming due to all the “creative” financial instruments. To me it was clear, and I threw out a slight paraphrase of an old saying:

Those who can; produce. Those who can’t; regulate.

Now, it’s undoubtedly more complex than that. Just as they say generals spend time preparing for “the last” war, I would say that regulators try to address “the last crisis”. While they were trying to solve the incentives that created Enron with SarbOx, people with money on the line were looking for ways to exploit the rules of SarbOx. The system is structured to reward those who find the loopholes in the system.

But I think it’s also clear that the leading lights of the world aren’t drawn to the comparative low pay of government employment. Those who are willing to risk more get the bigger rewards.

The problem is the system. If there were LESS constraints, there would be less of a presumption of safety in the market. That presumption of safety and stability is one of those things that allowed people to become so highly leveraged. If we didn’t live in a world where we assumed that the SEC makes us safe, might we take a little more care in how we invest?

TrackBack URI: http://www.thelibertypapers.org/2008/12/22/quote-of-the-day-35/trackback/
Read more posts from
• • •

5 Comments

  1. Kind of O/T, but speaking of regulation, I would love someone here at Liberty Papers to talk about this (not because it’s my writing, but because it’s something that legitimately needs more attention):
    http://www.culture11.com/article/34090?from=feature

    See also this:
    http://publiusendures.blogspot.com/2008/12/because-we-said-so.html

    …There’s also a bunch of related materials if you look around the internets.

    Comment by Mark — December 23, 2008 @ 7:17 am
  2. Mark,

    I passed it along to my fellow contributors… Not sure if it will be addressed or not (and I may or may not have time to do so myself).

    One point I would make, though, is that I hope the lead issue is not overly presented as the key to this. At least when it comes to any company manufacturing electronices for worldwide distribution, they’re already using lead-free processes — as the Europeans have banned lead solder as of about mid-2006. There is a free-rider aspect to this policy that has largely eliminated lead from most US domestic electronics production as well.

    This isn’t to “steal the thunder” of this bill, of course, as it appears some of the labeling and certification requirements will be just as bad as advertised, but the lead aspect is probably not a big deal in the grand scheme of things.

    Comment by Brad Warbiany — December 23, 2008 @ 10:10 am
  3. Brad:
    The lead aspect of it is not an element that anyone really cares about much one way or another (although there is a specific issue with regards to some of the products for older children…but for the most part, no one really cares if they mandate an elimination of lead because there are alternatives in most cases). The real issues are the testing and retroactivity issues, which do nothing to improve safety and impose disproportionate costs on small and medium sized businesses, who were completely shut out of the legislative process.

    To give a picture of the extremes of this issue, a manufacturer of unfinished, hand-made wooden toys will need to lay out hundreds of dollars in testing fees just to prove that the toys don’t contain lead (which of course is physically impossible). One of the people I interviewed for the article, who sells primarily hand-made, wooden toys, told me that 80-90% of her suppliers are either planning to close because of the regulatory costs or are considering it.

    Anyways, thanks for passing it on. It just seems to me to be an issue that bespeaks the perils that occur where regulatory capture meets well-meaning legislators. But more importantly, it’s an issue where there is an increasingly large opportunity to prevent the worst effects.

    Comment by Mark — December 23, 2008 @ 11:01 am
  4. I should add – the certification issue is also a problem, but more because of the draconian penalties for paperwork error than because of the marginal burden of certification.

    Comment by Mark — December 23, 2008 @ 11:03 am
  5. You’re talking about overregulation. Just letting the free market run roughshod over everything else isn’t really a good idea. Maybe I just support regulation a little more because the lack of it ended up getting me salmonella from peanut butter; but I don’t know, really.

    Comment by Cokehead — December 25, 2008 @ 10:13 pm

Comments RSS

Subscribe without commenting

Sorry, the comment form is closed at this time.

Powered by: WordPress • Template by: Eric • Banner #1, #3, #4 by Stephen Macklin • Banner #2 by Mark RaynerXML