You know, some things never cease to amaze me. Really.
Take the mess going on now. You know, the finance meltdown. Nobody could have seen this coming huh?
Well lets see here. In 80s the idea that government had no place in anything was proposed. Small government was the way to go! Less is more! Let the free markets breathe!
And so it was. Deregulation began. And what did we see?
Junk bonds. An entire industry was built on these bonds. And then there was a new kind of financial institution - sort of. The Savings and Loan. Not exactly a commercial bank, so they were not covered by US Federal Reserve regulations. And not exactly credit unions.
To be honest, I do not know what they were. But I do know they were largely unregulated. Free to do the free market thing.
And what happened? They collapsed. They invested heavily in high risk "junk" bonds. Sure they made an ass load of money for a time - but that ended.
And the taxpayers had to bail them out.
But that was not enough. No. The experiment needed to go on. Less was still more!
Now let me tell you the story of an airport. An airport that needed to be expanded. The local government decided that the "free market" could get the job done better, faster, and cheaper.
So they gave a company - the major user of the airport in question - a blank check. And they said "expand the airport the way you want - because after all you are the major airline here!"
And they did just that. Only since they were NOT using their own money it was all fucked up. Terminals were built that did not match the master plan. Things were ordered before they were needed.
15 years later, the expansion is not finished yet. The project is WAY over budget. It was over budget 10 years ago really.
The taxpayers are bailing that place out too. The airline gets to keep using the airport, without taking any of the liability of the project.
So much for the theory that somehow the "free market" is this magical fairyland, full of fountains that run with rainbow beams and the streets are all paved with gold!
Actually - I take that back. The free market is just that. And when the golden road has to be repaved - GOVERNMENT!!! WE NEED A BAILOUT!!!!!
So why were there regulations in the first place? Why were banks not allowed to be insurance companies?
Well there was a time when there were no regulations at all. Banks could do what they wanted to. And companies could do what they wanted too.
This period of time is also known as "the gilded age". Sort of. Business actually had to deal with the anti-trust law before this period of time. I think. Business also had to contend with the rise of organized labor - which created the middle class.
But unions suck. I know. Who needs them. We can trust business to treat people like they are not horse shit! Why there is no way they would allow profit to get ahead of employees.
Anyhow that is another historical thing.
Back to "the gilded age" - which unless I am mistaken was the period of time after WWI and before 1930? You know - "the roaring 20s"?
It was a pretty good time. All sorts of new securities were invented. Banks and financial institutions were running totally free and unregulated. Why they did not even have to tell the truth on balance sheets!!!
And then, late in 1929, the party ended. Just like that. The cops showed up and confiscated all the drugs and the beer keg - and made the girls put their tops back on and stop dancing around.
What followed was the Great Depression.
Modern banking regulations were written during the Depression - to prevent it from happening again.
And in the 40s - after WWII - the USA was booming. Same for the 50s. And 60s. Things got a little rough in the 70s, but before that the economy had a pretty good run.
But in the 80s enough people had died / forgotten the reason for regulations in the first place. So the push to dump them began.
Leading to today. And this is even AFTER the collapse of the Savings and Loans! How soon we forget huh?
There is such a thing as over regulation. There is such a thing as rules that are far too restrictive.
But the MYTH that we can just trust the free market should be clear. For now. Until we forget again.
And we will forget again.
Business wants the bailout - but not the regulations.
And we can trust them to not fuck up again! Right?