Kasz216 said:
NJ5 said:
Many of the bad practices at banks which caused the present recession were allowed due to looser regulation.
Banks used to be allowed to leverage capital at around 1:10 (lending out $10 for every $1 in excess capital), now they can often do 1:20 - 1:50. This generates huge "performance" bonuses for the banking executives, so they have every reason to encourage risky lending. In the long term, it generates bubbles which threaten to blow up whole economies, so at that point capitalism is forgotten and replaced by an oligarchy (aka bailout society, where governments sell taxpayers and the country's future to bankers).
A free market without any rules doesn't work, because a free market without rules can quickly become a non-free market. For example, without anti-monopoly laws, monopolies can emerge and squash any emerging competition, which means the free market can quickly be gone forever.
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Well obviously so. Though that's not really what they're talking about here.
I mean, people are seeing "free market" as "how their economy works now."
Or at least that's the way it seems.
Additionally, what is it when you have looser regulations, but are being pushed by the government to be risky? Is that more intervention or less?
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The problem is, regulations are pushed in and out all the time which change the way the financial world works. In the US (where the crisis started), important regulations like the Glass-Steagall act were repealed in 1990:
http://www.dailyreckoning.com.au/glass-steagall-act-banks/2008/09/25/
So did we have a free market before then, or is it just the recent history? It gets too hard to discuss something without clearly defining the terms.
