As political incorrectness goes, this blog is all about counter popular wisdom. Not that majority is always wrong, but "majority is NOT always right." And if you find this blog is "anti-majority", it's simply because for most of the time when majority is right, there is no need to blog. So you only see on this blog "unpopular" ideas, which I think worth people to seriously consider.
OK, deregulation is the cause of the financial melt down is one popular idea. It is so hot these days, that I encountered heated debate on this issue that people may take it personal. And you know what majority's opinion is.
It was so one unified opinion, that whenever I brought out my idea, I was looked at like an endangered animal wondering around a shooting range, you known how much time such a thing gets to express its idea - near ZERO.
At least someone dare to say it loud now. Which helps me get some audience.
FIRST, as I always maintained, capitalism's best strength comes from "The fit survive; the unfit die out. " (I'll have an other article dedicated to this). The key is instead of giving one authority all the resources and count on this single authority to do the best thing possible, capitalism rely on many entities tries out many different ideas and let the fit survive and unfit die out. The "Capital" works like the natural selection process, determines who survive and who dies out. That's the real capitalism.
Now, what deregulation means, was to the key point of capitalism - let them try what ever they think is good, and those "unfit" will die, right?
Wait a minute, here is what the problem comes from. Through out the whole 2008 financial crisis, the most commonly heard phrase was "too big to fail". This is nothing less than direct counter-capitalism.
So how does this happen? Wasn't this "too big to fail" caused by deregulation?
Partly it was.
We all know one key responsibility of a government governing a capitalism economy is enforce "anti-trust" regulations. And these anti-trust regulations unlike most of the "do what I tell you to do" type of government intervention, is "you are not allowed to be too big to fail, or too big for others to compete with you".
OK, if you like me think the deregulation of "giants-can't-merge" regulations, I'm with you, it was part of the problem.
However, one of the key reasons these "rules" weren't followed was because US financial institutions were playing in a field filled with "regulated" players. From Swiss bank with government backing, to Russian semi-government funds, to Mideast sovereign funds to Chinese government reserve funds. These are all players with government backing, and they were "impossible" to fail. To compete with competitors "impossible to fail", US financial institutions were allowed to be bigger, and bigger - resulted in "too big to fail" situation. Which was the real cause of the whole system melt down.
In short, in a global environment, even though a local government may follow true capitalism theory, the result can be unintended, as other governments may not be following the same rules, yet their companies compete with companies from capitalism economies.
So some may wander, why those "regulated" country did not have the problem like US had - government had to step in and bail out their financial institutions?
What problem? For those countries where financial institutions are either owned, backed, or tightly controlled by their government, government save these entities are not called bail-out, their government are the managers, and they just suck it up, not called bail out. Check the Russia, Chinese national balance sheet, you will see.
On the other hand, the undue low interest rate from 2002-2008 was equally blamed in causing a bubble while it should have encouraged saving. So partly, the wrong was done by one of the most powerful authority. That's what I call the prove of problem of "regulate everything" - you give control to a single authority and wish it will do the best, how about they do the worst? What's your plan B?
In capitalism, plan B is the company doing the same business one block down the road - the fit will survive and just let the unfit die. In "totally regulated" economy, the "government" did it wrong, we all die.
happy dying.
