Thursday, June 28, 2007

The Greed Problem

By Cernig

Sean-Paul at The Agonist, who has a wealth of experience when it comes to the money markets, is scathing today about some feeble excuses being offered for why American financial markets aren't more competitive on the world stage.
the reason Wall Street is losing out on listings, M&A deals and all the other goodies of globalization has absolutely nothing to do with Sarb-Ox. Can anyone honestly tell me that the market regs coming out of Brussels are less stringent than Sarb-Ox? No, you can't. The bottom line here is that Goldman, Morgan, Merrill, Citi, etc. charge excessive fees and they are losing business because of it. Greed, plain and simple.
The greedy answer is to "reduce regulation" and "let market insitutions be self-policing". That way, they can suck out even more of the juice and so make the market even less competitive while feeding only themselves. I've seen it all before in the UK endowment insurance market. Eventually, the Thatcher government had to get really draconian to ensure that policy-holders got even a modicum of return on their money. The Thatcher government!

I'm not going to go into detail here today but as a philosopher, not an economist, I've one observation you can kick around if you wish - Adam Smith was a rational and enlightened man who, try as he might, couldn't make sufficient allowance in his economic theories for those who weren't also enlightened and rational men. His economic writings therefore have a serious flaw - human nature - built in at the base. A greedy, unenlightened and irrational man, like the Gopers running many of these big-money traders, will blithely kill his own livelihood out of arrogance and ignorance. He figures he'll be dead and gone by the time the whole thing collapses. That's why an entirely free market won't work. Warren Buffet, an enlightened man I'm sure that product of the Scottish Enlightenment Adam Smith would have gotten along well with, gets this. "What is good for the croupier is not good for the customer".

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