Merkel and Sarkozy get a 911 call
A house is on fire and they're asked to help. It's urgent. What do they do? They propose a set of regulations for home construction and demand the implementation of a number of guidelines concerning emergency calls.
The ridiculous posturing by the French president and the German chancellor on the eve of the London Summit, with their persistent demands for more market regulation, took the biscuit. Were they not aware that many the major participants in the financial markets crisis are public corporations, which are already regulated by governments? Are they so ignorant of finance and its functioning?
Backgrounder: In the old days on Wall Street, market players were either individuals or partnerships and they made decisions every day that involved their own wealth and well being. Gradually, however, these players were replaced by public corporations and decisions were then made by managers who were supposed to act in the best interest of the owners (shareholders), but did the very opposite. They awarded themselves gigantic compensation and increasingly placed enormous bets on the markets and so, some ten years after the conversion of America's big investment banks from partnerships to (regulated) public corporations, we have a crisis on our hands. But let's be honest here. If you had a chance to make $50 milly a year by taking a risk, wouldn't you do it? Stan O'Neal, former CEO of Merrill Lynch, made $50 million per annum while using the global financial services company as a pipeline for mortgage-backed securities that his colleagues gleefully passed along to wide-eyed bankers in Germany and France. Merrill Lynch is now bankrupt but Stan's got a mansion and a private jet thanks to all that junk.
The moral of the story? A market where players risk their own money is better than one in which players risk other peoples' money and pocket the profits but suffer none of the losses, thanks to increasing state interference. Accountability, not regulation, is what's needed.
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A market where players risk their own money is better than one in which players risk other peoples' money and pocket the profits but suffer none of the losses, thanks to increasing state interference. Accountability, not regulation, is what's needed.
Indeed. However, the point is that the pivotal role of the financial sector in the worldwide economy forbids letting it fall. Bankers knew that governments would have to jump in in case of crisis to keep the backbone of economy alive. The Anglo-American model of relatively unregulated, uncontrolled markets has raised its ugly face, after years of good earnings for all.
To add to your metaphor: Yes, Merkel and Sarkozy want guidelines while the house is burning. First, however, they should help get the fire under control.
The house-owner, however, let his chimney burn with kids unsupervised in the house while taking a stroll with the dog. And now the house-owner is back, screaming at his neighbors to pass bigger buckets of water, because his house is on fire and might threaten theirs.
Posted by: hans ze beeman | April 3, 2009 11:34 AM