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From Blaming the Sharks
A man goes to the beach, looking forward to a swim. He ignores the crossed (or missing) safety-zone flags. He ignores the "shark in the water" signs that have been erected. He ignores the shark siren. He ignores the spotter plane. He goes into the surf and is promptly killed by a shark.
His family blames the shark.
[edit] Blaming the Sharks
(or: Why Blaming Bankers for the 2008/2009 Financial Crisis is Missing the Point)
The bankers were not, are not and should never be appointed guardians of our (western nations') financial systems. Even if they were, the immense economic power wielded by the governments of affluent countries carries with it immense responsibilities which were not merely ignored but, in some cases, actively subverted. Even if the bankers were saints, the outcome would have been similar.
It appears to me that a great many people are altogether too willing to leap to blaming the bankers because it (a) is plausible, (b) fits the "everything is someone else's fault" mentality and (c) is not merely simpler, but far less painful than understanding what actually happened. This wiki is an attempt to gather in one place an argument about the role that government played in the crisis and to explore what this means for democracy and the role of governmental regulators generally.
The idea behind the name and opening text is to poke fun at the ideas that we should be surprised:
- that a shark killed a swimmer
and
- that bankers are "greedy".
It was not strictly my intention to describe bankers as sharks, but rather to point out that a similar mistake to the one made by the fictitious family is being made by very many people with respect to the bankers.
[edit] The Role of Market Participants and Government in "Free Markets"
...democracy is the worst form of government except all those other forms...Churchill
Free markets have a similar characteristic. There are many problems, many things go wrong, abuse is not uncommon, but the alternatives are worse.
There are two major roles for government when functions are devolved to competitive "free" markets:
- As in society at large, to investigate and prosecute fraudsters and thieves.
- To take steps to ensure that a market remains competitive through various legislative and/or regulatory constraints on the more powerful participants.
The benefit that a society gains from devolving a function to a market (whether devolving from government, existing firms or households) is largely that the need to survive in a competitive environment will tend to bring out more capable, more efficient producers, thereby improving productivity in a society as a whole. There are many qualifiers on this, but the important point is that these benefits only accrue if the market remains competitive. The moment one participant is allowed to become large enough, whether through growth or acquisition, that it is no longer feasible for other participants to compete (or, more usually, multiple small players have become so marginalised that they can only compete with each other), the benefits to society of a competitive market disappear.
This points to a limit on desirable "freedom" in markets: the freedom of a participant to eliminate competition is, for society at large, an undesirable freedom for any participant(s) to have.
A related risk exists if regulators, prosecutors and courts all grant a free pass to, or encourage, participants to act fraudulently or to steal. This doesn't directly undermine competitiveness, at least not if it's done uniformly, but it does undermine the broader "productive economy" goal.
The role of market participants, then, is to provide goods and services to customers competitively, without fraud or theft, and to the extent necessary, within the limits established by legislators and regulators, while the role of government is to establish the limits necessary to facilitate a competitive market and to prosecute abusers. Further interference by government is, in almost all cases, going to do more harm than good.
(more to come!)
