Atlas Shrugged: The Mocking

Saturday, July 24, 2010

You're On Your Own

In this, the best of all possible world, the Land of the Free Market and the Home of the Brave Libertarian, every problem is merely an opportunity for the savvy businessperson or consumer. We don't need regulations because when a person or business produces a bad product, everyone will not buy it and the business will be forced to improve quality. Equilibrium will be maintained and we are free of the regulations that just mess up the orderly ebb and flow between consumer and producer. Let's ask Megan McArdle what she thinks about regulation.

For instance, should the financial industry have been better regulated to prevent the housing bubble?
When I try to get people to specify, beyond those four rather anodyne [regulation] suggestions, we should do, there's a lot of hemming and hawing. Even the left-wing think tankers sort of look at their shoes and whisper "We need a better regulator". At which point even the left-wing journalists in the audience start asking "Where are we going to find regulators who understand this better than the guys at Goldman Sachs--and are willing to work for, say, a GS-13 salary?" The only people who confidently state that they have a surefire master plan to fix the problem are, not to put too fine a point on it, morons with very limited understanding of financial markets. These people generally start by talking about how the Bear Stearns crisis can really be traced back to the repeal of Glass-Steagall, then almost immediately reveal that they know nothing of Glass-Steagall other than its name.

I have tried all sorts of ways to ask these questions. Nor am I engaged in "libertarian gotcha"; though the game is hours of fun, I am not actually against better or even more regulation of investment banks*. I just want to know what sort of regulation we are going to have; I am against doing something for the sake of doing something.


But the fundamental question that no one ever answers is simply "How will the regulatory agency be any smarter than the banks?" The political process and existing regulatory infrastructure did about as well at anticipating and preventing the current problems as the banking system did. As I say above, this question usually gets asked by liberal journalists. And its usually answered by an honest and intelligent liberal policy wonk forthrightly saying, in essence, "I have no idea."

Indeed. It's much better to do nothing and experience a global housing bubble than risk enacting a bad regulation. Everything is too hard and nobody ever knows.
What we need, fundamentally, is not simply stricter regulation or less greedy bankers. What we need is better economic theory of how these things play out, so that the regulators have better tools to assess and prevent systemic risk. But that's not how we're thinking right now. What we're looking for is not better tools, but someone to blame.

Shame on us, thinking that better regulation will help us when what we really need is better theoretical thinking. Especially when regulation doesn't work anyway.
I think systemic resolution is important, and it certainly wouldn't hurt to keep an eye on systemic risk. But Tyler is probably right that we cannot get the financial regulation we want until we decide what we want: low inflation, low interest rates, and broad credit availability; or low risk and low profits in the banking sector.

I'm also generally skeptical that we're going to achieve the implied goal of making sure that financial crises never happen. If anyone, including congressmen or regulators, had believed that there was a reasonable risk of the financial crisis we just experienced, it never would have happened. That's what you have to fight, not some perceived imperfections in the regulatory structure.

And for god's sake, leave poor Alan Greenspan alone. Just because he encouraged everyone to take out bad loans doesn't mean he encouraged everyone to take out bad loans.
Gramm/Greenspan haters from the left: If regulation is so impotent that a single rule change, or even two, can leave the system vulnerable to this kind of collapse--indeed, make it worse with other rules that are still there--then why the hell do we bother regulating? If your regulators need to get it right 100% of the time, we might as well pack it in now, because there is no system on earth that can guarantee no one will ever be wrong. If one guy can leave us in a position where the regulatory system makes things worse rather than better, we may well be better off without the regulatory regime.

Paul Krugman disagrees.
Most of what Alan Greenspan said at last week's conference in his honor made very good sense. But his words of wisdom come too late. He's like a man who suggests leaving the barn door ajar, and then - after the horse is gone - delivers a lecture on the importance of keeping your animals properly locked up.

Regular readers know that I have never forgiven the Federal Reserve chairman for his role in creating today's budget deficit. In 2001 Mr. Greenspan, a stern fiscal taskmaster during the Clinton years, gave decisive support to the Bush administration's irresponsible tax cuts, urging Congress to reduce the federal government's revenue so that it wouldn't pay off its debt too quickly.

Since then, federal debt has soared. But as far as I can tell, Mr. Greenspan has never admitted that he gave Congress bad advice. He has, however, gone back to lecturing us about the evils of deficits.

Now, it seems, he's playing a similar game with regard to the housing bubble.

At the conference, Mr. Greenspan didn't say in plain English that house prices are way out of line. But he never says things in plain English.

What he did say, after emphasizing the recent economic importance of rising house prices, was that "this vast increase in the market value of asset claims is in part the indirect result of investors accepting lower compensation for risk. Such an increase in market value is too often viewed by market participants as structural and permanent." And he warned that "history has not dealt kindly with the aftermath of protracted periods of low-risk premiums." I believe that translates as "Beware the bursting bubble."

But as recently as last October Mr. Greenspan dismissed talk of a housing bubble: "While local economies may experience significant speculative price imbalances, a national severe price distortion seems most unlikely."

Wait, it gets worse. These days Mr. Greenspan expresses concern about the financial risks created by "the prevalence of interest-only loans and the introduction of more-exotic forms of adjustable-rate mortgages." But last year he encouraged families to take on those very risks, touting the advantages of adjustable-rate mortgages and declaring that "American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage."

If Mr. Greenspan had said two years ago what he's saying now, people might have borrowed less and bought more wisely. But he didn't, and now it's too late. There are signs that the housing market either has peaked already or soon will. And it will be up to Mr. Greenspan's successor to manage the bubble's aftermath.

Why are we reviewing McArdle's attitudes towards regulation? Well, it seems that the happy couple is having a bit of trouble with their rented house.
Lawyers out there: what are your legal rights the third time the plumbing breaks and floods the house?
about 4 hours ago via TweetDeck

@elfrankenstino Rent, and it's a row house
about 3 hours ago via TweetDeck

@earldean71 What is constructive eviction and why is it dangerous?
about 2 hours ago via TweetDeck

earldean71 I'm curious more than practically interested
about 2 hours ago via TweetDeck

(Her correspondent tells her that it is being unable to live in a rental because of substandard living conditions that have the same result as eviction--one is unable to live in the place one rented, but judges don't buy it unless you have actually been driven from the house.)
@earldean71 Well, technically we have been, since we are afraid to use the plumbing, but I'm not looking for anything that involves bailiffs
about 2 hours ago via TweetDeck

No, technically McArdle is still living in the house. So technically she hasn't been driven from the house. When you don't bother with facts, the truth is whatever you choose to believe. A judge will disagree, but they're just party poopers who don't understand that the elite get to make up their own facts.

I called a lawyer friend, and he explained the legal options and came up with an answer. His response:
They're fucked.

The landlord is not breaking the law. McArdle can't break the lease either. She will have to find another way to get the landlord to do the right thing. The Washington Post, in an article about DC renters' rights, says:
The District of Columbia Housing Code (DCHC) is enforced by the D.C. Department of Consumer and Regulatory Affairs Housing Regulation Administration (HRA)."

DCRA publishes the "Tenant's Guide to Safe and Decent Housing." This 30-page booklet summarizes the Rental Housing Act of 1985, and Chapter 14 of the DC Municipal Regulations (DCMR), which cover the city's laws and regulations for rent-controlled apartments."

So ultimately McArdle is dependent on a consumer protection agency, which is pretty funny because she is currently trying to ruin the reputation of Elizabeth Warren, who is trying to create a financial consumer protection agency and is being considered to head that agency. For McArdle, the idea of siding with consumers over bankers is the worst sort of heresy, so we devoutly hope that McArdle isn't forced to give up all her most cherished ideas and seek redress with an agency that should have never been created in the first place, according to her ideology.

More on McArdle and Warren later. It's almost beyond belief that McArdle would depend on her debunked criticisms of Warren, which are full of inaccurate statistics and ideological bias, to state that Warren can't be trusted because her work is full of inaccurate statistics and ideological bias, but self-knowledge is not exactly a characteristics of the willfully blind authoritarian follower.


Packing up the valuables and refugeeing to Petworth for the duration
about 1 hour ago via TweetDeck

She will insist on using that word, no matter how stupid it makes her look.


Substance McGravitas said...

"Where are we going to find regulators who understand this better than the guys at Goldman Sachs--and are willing to work for, say, a GS-13 salary?"

I dunno. Maybe you could post an ad.

Euripides said...

[neo-classical economist]In mainstream economic theory,if her Landlord had to deal with burdensome regulation such as minimum plumbing standards, he would have to raise the rent on his property in order to cover this cost, thus leaving her homeless.

Before she entered into her housing contract, economic theory assumes that both sides had perfect information about the transaction before agreeing to it, thus proving that she new about the dodgy plumbing beforehand.

Because she knew about the cost of the plumbing beforehand, and this factored into the cost of the rent, we can see clearly that she now wants state intervention in the form of welfare to keep the cost of the rent affordable.[/neo-classical economist]

My affordable suggestion for her is a snorkel, and a spare Republican wet-suit.

If only a libertarian had some theory about such problems, and actually cared about the mis-use of power, she would know what to think and do (and probably ignore). Maybe some-one will write a book one-day called; "What Is Property?"

Kathy said...

"..When I try to get people to specify, beyond those four rather anodyne [regulation] suggestions, we should do, there's a lot of hemming and hawing. Even the left-wing think tankers sort of look at their shoes and whisper "We need a better regulator..."

What an effin lie. There are a lot of answers to the "question" that I don't believe she's ever asked, or listened to the answer if she did ask it.

MY answer would be a very loud shout: "GLASS-STEAGALL, you ... you... lying, fatuous RETARD!"

fledermaus said...

"Because she knew about the cost of the plumbing beforehand, and this factored into the cost of the rent,"

Are you serious? She signed a lease in a place knowing that the plumbing was bad and rented it anyway? Really?

tigris said...

If regulation is so impotent that a single rule change, or even two, can leave the system vulnerable to this kind of collapse--indeed, make it worse with other rules that are still there--then why the hell do we bother regulating?

Screwing around with a formerly working regulatory framework messed things up badly, therefore why regulate at all? In what universe is this a sensible statement?

Kathy said...

fledermaus: No, I doubt ArgleBargle knew anything at all about the place she leased before signing the contract. BUT as a "libertarian" she ought to have know everything.

One of the premises of libertarianism is that the people involved are Informed.

Of course that is the premise of a functioning Democracy, too, written into the FIRST amendment, and the reason our Free Press is nearly gone, instead we are treated to ignoramus' like Princess PoopyPanties (Meg), Beck, David effin Brooks and so on.

spencer said...

Megan's reliance on government regulation in her own situation is not at all at odds with her disdain for it when it comes to the financial markets, for one reason: her landlord is clearly of an inferior class; therefore, DC's housing regs are in this instance being used to further the interests of the deserving in the face of uppity behavior from the hoi polloi. Because financial sector regulation would do the opposite - protecting the faceless rabble somewhat from the greed of the entitled - she is against it.

It has nothing to do with the utility or intrusiveness of regulation in general. It has everything to do with who gets to use it against whom.

Sebastian Dangerfield said...

It is indeed amusing to see Idiot Megan running to the very tenant laws that she elsewhere criticizes as too tenant friendly and now finding to her chagrin that tenants haven't reversed the feudal hierarchy of American proerty law in DC just because it has a few sensible and humane restrictions on eviction. But it is even more revealing of Idiot Megan's cluelessness and sense of entitlement that she thinks nothing of demanding free legal advice via twitter and believes that such advice would be worth following.

Susan of Texas said...

Since McArdle and her husband just bought a house, no doubt we'll soon hear all about how unfair housing regulations are to house owners.