Posner: ‘Blame Regulators (& Economists)’
Let’s place the blame where it belongs. Not on the bankers, who are not responsible for assuring economic stability, but on the government officials who had that responsibility and failed to discharge it. They failed even to develop contingency plans to deal with what everyone knew could happen in a context of escalating housing prices (it had happened in Japan in the late 1980s and the 1990s). Lacking such plans, the government responded to the crisis with spasmodic improvisations, amplifying uncertainty and mistrust and thus retarding recovery.
–Richard A. Posner, “Capitalism in Crisis“; The Wall Street Journal (5/7/09)
The Wall Street Journal is providing an ongoing platform to Judge Richard Posner, the latest installment of which appears on today’s Op-Ed page.
(Sidebar: just like celebrities hit the talk shows to promote their new movies, leading commentators have a way of showing up on Op-Ed pages just as their latest book debuts.)
Posner’s thesis: ‘you can’t blame capitalists for doing what is in capitalists’ DNA to do.’
Call it “The Scorpion and the Tortoise” defense.
Notwithstanding the scorpion’s promise to the tortoise not to sting it mid-way across the stream, causing them both to drown . . . that’s exactly what the scorpion does. Its retort: ‘I had no choice. It was in my nature.’
All of which cries out for a two-word rebuttal: ‘regulatory capture.’
Here’s Wikipedia’s definition:
Regulatory capture: a term used to refer to situations in which a government regulatory agency created to act in the public interest instead acts in favor of the commercial or special interests that dominate in the industry or sector it is charged with regulating.
All the people — including Posner — now calling for tighter regulation of finance are conveniently overlooking one little question: who dismantled all the protections and safeguards enacted after the last systemic crisis, eighty years ago?
Beware the “Financial – Industrial Complex??”
Ironically, Posner, an esteemed law professor and jurist who should know better, makes the classic legal mistake of confusing de jure and de facto causes of what he calls the “Depression of 2008.”
(De jure refers to what is technically correct, in a narrow, legal sense; de facto is what’s actually true.)
So, the de jure causes of today’s mess would be such actions as repealing Glass-Steagall; allowing a handful of investment banks to lever up 40:1; deflecting calls to regulate exotic credit instruments (“collateralized debt obligations?”); failing to act as the credit rating agencies gradually lost their independence — and credibility, literally; and engaging in overly accommodating monetary policy (again, accommodating whom?).
The de facto cause would be an implicit belief that what’s good for Wall Street is good for Washington — and vice versa.
Assuming there’s any difference.
No less than President Eisenhower, leaving office, famously warned of the threat posed by “the military-industrial complex.”
He’d likely offer an updated version were he to survey today’s business and political environment . . .