On the point of Regulation

In Money on September 27, 2008 at 17:37

A statement from SEC chairman Christopher Cox

The last six months have made it abundantly clear that voluntary regulation does not work.

Greenspan has argued that regulation is best done by counterparties and banks; not by the government:

I do believe bank risk managers and loan officers are more knowledgeable than government bank regulators. Bank loan officers, in my experience, know far more about the risks and workings of their counterparties than do the bank regulators that examine those counterparties.

He even punts at the end:

We have tried regulation ranging from heavy to central planning. None meaningfully worked. Do we wish to retest the evidence?

Greenspan implies these boom-bust cycles are inevitable in capitalism. However, forgoing regulation completely (on hindsight :)) seems to be like forgoing crime prevention efforts because we cannot have perfect crime prevention.


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