Conferences have always bothered me, as they seek Excuse for past behavior, rather than true conduct of future policy; read this Post from James Hamilton. The capital adequacy statement only says that the Fed flooded the markets with Cash, the markets did not take the Bait, and Production did not return to normal; yet the Process is touted for the salvation from a Condition never realized, and possibly never viable. Compensation is touted as the bugaboo which geared the Risk-taking; everyone careful not to name actual fraud, no one could not say that more than Bernie Madoff and Co. should have been jailed. Bernanke was careful not to expound on the role of Derivatives, and Blinder simply mentions the need for regulation; everyone careful to not mention the Fed power to limit financial instruments which carry exterior liability (where Buyers are left uninformed of long-term extension of liability–i.e., the opposite of Corporate limitation of liability where added Costs cannot be added on at later date). The Resolution mechanism may not be a terrible as mentioned, as Chapter 11 bankruptcies have developed over much of a century, and the idea of a better system of regulation satisfaction encases much denial of outside Party rights by infringement. Making the Fed’s job easier may not be a beneficial outcome of regulation. The very complexity of the mechanism may be one of the truly successful impediments to outrageous propagation of poor financial instruments; any Reward of liability elimination for Banks would spread the practices of deviancy of instruments. We do have to prevent the obstacles of the Past, but much discussed could possibly facilitate continuance of bad practice.
One should read this article with the required liter of jaundice. Everyone knows when they enter the realm of Insider Trading, and has a relatively good idea when the liability starts to impact. I do not believe in the Insider Trading regulations and their punishment, knowing Hayek’s emphasis on information; and knowing this was the very information he found so critical. The entire Concept of punishing this information distribution would seem Self-Defeating, as well as impossible in an environment of spread risks and enhancements. How often is this information spread by Insiders who are invested with the individual investment firms they talk with? Why should Anyone be forced to take a financial loss, when they can witness a financial disaster developing? The fact of reality not recognized is that We exist in an extended environment of financial interest, and stopping advance warnings will never work, no matter what restrictions are applied. One has to ask if those restrictions could possibly be worthwhile.
Read this Post and ask yourself how rational is the Market system. Market flux is always based upon irrational behavior of a high percentage of Participants; any lack of such irrationality would lead to a stability of market pricing. It is the degree of Risk which provides Market movement, and successful Choice carries the only Reward. Business and Investment can make fortunes without taxation of Others, but Markets cannot. This knowledge could well help one adjust to the difference of the Market. You have to outguess your Peers, or face the same rate of Return as your Peers, which must be a loss if Anyone has gained from the transactions. One has to get to the correct path before Others, or one will sink into the common pool. Remember that the common adage of market growth depends on the refusal of corporate management to issue additional Stock to weaken their Stock price. lgl