FAILURE, THE ULTIMATE TEACHER AND REGULATOR (BUT DON'T TELL THE LIBERALS WHO WANT TO REGULATE FAILURE AND LEARNING THE HARD WAY OUT OF EXISTENCE)
John Tamny writes at Forbes today on the folly of government regulators fixing the derivatives markets. If you want to better understand what's coming, then read this and all John's pieces on the economy:
It's folly to assume that over-degreed regulators with little to no market experience could somehow understand "exotic" derivatives--as financial journalists have dubbed them--well enough to save experienced investors from themselves. Regulators are rarely equal in knowledge to those they want to regulate.
More broadly, it has to be remembered that laws have already been put in place to insure greater oversight of public companies and their underlying assets. Sarbanes-Oxley was passed in 2002, and it imposed incredibly stringent rules on all public firms with regard to balance-sheet transparency.
The costs of compliance were enormous, but despite the figurative "root canals" that all public firms have been forced to suffer, regulators were still caught unaware when the economy turned in the wrong direction last year.
What this tells us is that contrary to their protests, regulators are always fighting the last war--and not very effectively. If they could somehow peek Cassandra-like into the future their work might prove useful, but once again, were they in possession of these kinds of remarkable skills, they would be making obscene amounts of money in the private sector......
Simplified, failure is the ultimate teacher, and the ultimate regulator as a result. So if eradication of market crises is the goal, our federal minders can and should only do one thing: let failures be.
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