Subject: Regulatory Hubris
Date: Thu, 15 Mar 2012 06:20:31 -0400
Re: Shadow banking "threatens stability"
In his recent address to the Cass Business School in London, Lord Turner advances the preposterous claim that his army of regulators have the ability to decide what is and what is not a safe and sound investment. This is the height of hubris borne of a complete lack of understanding of financial markets. No one knows what is a safe and sound investment. This is determined ONLY by the market discovery process, which works ONLY when the participants have their own property and livelihoods at risk. Those investors and their advisors who are successful become wealthy, because they have added to the wealth of society through their insight. They are rewarded with more assets to manage and control. Those investors and their advisors who squander wealth will not be entrusted with more. Regulators risk neither their own wealth or their professional livelihoods and, thusly, are not subject to the discipline of the market. Thusly, they CANNOT engage in the kind of disciplined calculation that is necessary for markets to flourish.