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Is Regulation Needed To Protect The Market From Itself?

I tend to simplify and generalise on a blog, I don't wish to take up to much of readers time. I'll attempt to simplify my view of the markets.

It's a sea of money. Incentive. A medium for exchange. Resources for money for labour for money for goods.

We're stuck with it no matter what anyone imagines. There is no easy way to work out how to exchange the myriad of skills and articles without money in between.

The ocean of money is plied by mighty big ships. Government ships. Historically the government ships were the biggest. They could make big waves, move oceans and create seas of money. Bigger than corporations.

Now corporations can create seas of cash and disturb the ocean in ways the robber barons only dreamed of. They can also create invisible whirlpools of debt.

There isn't anything wrong with money, or governments, or corporations in theory. As we have seen in practice, there are usually big problems when there is too much concentration of money in too few.

Governments have a purpose, most agree what it is in principle, however the ideas on execution differ. Generally the citizens who are affected have some say in their government, in theory at least.

Corporations by comparison, represent a few citizens, often from many countries, and corporations base themselves in whatever country most suits the corporation's purposes. The most beneficial laws, and taxation regimes are favoured. By default the corporation is a law unto itself, having chosen what set of laws might apply.

The objective is to profit. Adding value might be incidental. A corporation can make profits without ever adding value to society.

When we look at the current crisis, it's obvious there was a valuation problem with housing, in retrospect, but what tipped the scales?

Did hedge funds speculating in oil and break the will of the consumer with high gas prices before governments could put into place the cushions they were promising?

Was it unrealistic speculation in technology companies, turning real business into the poor relation and putting  them out of favour with investors, as share price speculation rather than dividends became the way to generate income?

Was it letting hot air drive values in both real estate and shares and then lending for speculation against already overvalued assets.

There is no doubting that these things didn't add value.

Financial institutions abounded, deriving their earnings from fees. Instead of adding value, they just added exotic packaging, and fees.

The oceans of money being churned up by massively geared and funded speculation didn't take long to make waves on even the most distant shores. The problem was that there was no adding value, just a chaotic redistribution without substance which has eventually consumed itself. We now see a maelstrom without logic or reason, and beyond even, it seems , all government's powers to calm.

This is why we need regulation.

We need to come to an agreement as to how big we'll let those waves be, so that they never combines into a global tidal wave drowning the efforts and labours of all before it. If that means limiting the size of those corporate and hedge fund ships so the waves cannot swamp us, then so be it. We also need to better monitor those whirlpools of debt.

One thing is for sure, we'll have to be able to accurately measure those ships in the ocean of money if we are ever going to see calmer seas.

We don't want a stagnant pond, by any means, and I would compare that to communism, but we don't need the other extreme, 'free' markets, two words, not an absolute, except in anarchy. Nothing and no-one is that free.

It's time we got together, limited the size of the waves without stagnating the oceans of money, and make sure they don't swamp the government fleet. That also means giving the developing world a fair wind and smoother ride.

I think that everyone has already learned their lesson while the punishment is still on the increase.

Politicians, as for 100 days, you don't have them. I know that most of you are contemplating your next electoral defeat, it's time to show some style, and if you do, this black mark on your name will become a thing of the past.

We still have greatest the opportunity to look back on this moment in history as the beginning of what can be a really bright future. Make it so, think big. 



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19 Mar 2009


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