Hi George, I’m not denying they were ‘bad’ organisations, and your assessment isn’t wrong either.

But that bad assessment of risk happened not only at FM FM but also at other investment banks that weren’t protected by the same guarantees. I’m saying the problem is not enough regulation itself, in this case.

ps – Looks like AIG is next in the bag.

Was LTCM not disastrous enough?

Your point about having the wrong kind of regulation rather than too little is a fair one though. The regulators had the power to stop the current situation but either didn’t see what was happening or didn’t understand or just didn’t bother to act. I work in banking and the FSA is certainly keen to dictate small details about how we do things on a daily basis but couldn’t prevent the Northern Rock and Equitable Life fiascos.
It’s like they force you to get your car MOT’d and serviced, ensure your tax is up to date, are properly insured and know the highway code inside out then stand by and watch as you drive the wrong way down the M1.

Neither “socialists” nor “capitalists” were to blame for the FMFM mess.

The criticism of FMFM is that it represented the worst of both socialism and capitalism; managers used the freedom from risk afforded by an implicit government backing to behave like capitalists with an unfair advantage and that, thus protected, they didn’t make a brilliant job of managing their risks.

The accusations leveled at them is not only that they put the state on the hook for their poor judgement but also that they failed to make mortgages in America any cheaper than in Europe where, despite our greater acceptance of the state, we do not have comparable institutions.

And it gets still worse because, even if FMFM had made mortgages cheaper, they still wouldn’t have helped out the American homeowner because, when mortgages get cheaper, house prices rise to compensate. So your outgoings end up the same.

It should therefore be obvious that these institutions made no sense from either a left or a right perspective – they were simply bad organisations.

As the economist will tell you

http://www.economist.com/opinion/displaystory.cfm?story_id=12009702

No, or. at least, not necessarily. The idea that these institutions are not regulated or only lightly regulated is wrong. There is a mas of regulation, it just wasn’t any use. The financial sector with the least regulation, hedge funds, seem to be doing OK (and remember when everyone predicted disater from that quarter?). That is what I mean for the case not being made. There is definitely something wrong with the way the big investment banks are (were) structured but I syuspect that they will sort it out now that they have had their backsides kicked.

So the stock exchange took the news well. It was probably tempered by the fall in the price of oil – offsetting some of the impact. Also, I’m not sure how the stock exchange is to do with whether we do or don’t need more robust banking regs (or what you mean by reform if it isn’t more regulation – even slightly more). Surely the fact that several *massive* lenders have collapsed due to irresponsible lending is enough, no?

My mistake, not Applegraph but Matt Ridley, Northern Rock’s chairman. He spent the 1990s writing in the Telegraph against all government interventions in economic matters which fairly qualifies him as a Libertarian. Amazing that the organization he was previously in charge of had to be bailed out by the detested government at the behest of the man himself and to a whooping £50bn.

You could apply that to FM and FM, possibly. But you’d need to show some evidence for that, rather than just rhetoric.

How would you then explain the collapse of capitalist titans such as Lehman Brothers or Merrill Lynch? That’s who I was talking about.

You don’t see a likely connection between these two things? If you were told not to worry too much about your savings because if you lost them, they would be paid back, do you not imagine that might influence your spending/investment decisions?

Yes – though please let me know!!

Soon, nowhere (apart from on this blog last year – http://www.liberalconspiracy.org/2007/11/20/what-about-northern-rocks-boss/ ) can I see anyone claim that Adam Applegarth is a libertarian and I think you will find that neither the TPA, the LPUK, the LA, or Samizdata or any other popular libertarian opinion source are suggesting that banks be bailed out by the government. The LPUK blog goes rather further, proposing, in principle, an end to Government-backed currency altogether. You are very mistaken to associate these bailouts with a libertarian economic position.

Awesome post on your blog Aaron, I guess times like this make you feel smug and depressed at the same time? ~ LeeG

Indeed, but I’m also someone who sees opportunity in such desperate times. The knack is judging the bottom – and then buying everything you can!

Oh and thanks. )

The problem isn’t givt backing, it is their bad risk assessment and taking on bad debt. It shows actually that these people are crap when unregulated. ~ Sunny

Agreed.

Actually they were semi-privatised – to get the borrowings off the government’s books. Mixing public and private enterprise always messes things up – see New Labour.

Even now – following the bail-out – both still trade on the stock exchange (having lost 80% of their market cap).

But they were still answerable to shareholders.

This sleight of hand in blaming ‘socialists’ is all very amusing, and predictable, but how are you guys going to blame socialists for the failure at Lehman, AIG, Merrill Lynch, Northern Rock and more?

The problem isn’t givt backing, it is their bad risk assessment and taking on bad debt. It shows actually that these people are crap when unregulated.

And if the Feds hadn’t stopped in to rescue Fannie Mae and Freddie Mac, then the financial system would have fully collapsed.

Of course the TPA would oppose it. But then who said they lived in the real world?

Until they run out of money themselves, at which point they run over to the bad big government for financial help.

Adam Applegarth anyone? As loud a libertarian as you get, spent years telling us how governments should become smaller and how various government safety nets should be removed then ran cap in hand to the same government once he was neck-deep in crap.

Libertarians = Hypocrites.

)

Wonder how the TaxPayersAlliance would spin this one?”

Uhh… by opposing it? Libertarians/small “c” conservatives don’t have a corresponding reflexive “pro-Americanism” to mirror the left anti-Americanism. We can afford to take each policy as it comes. Libertarians are fully aware that socialism operates at the heart of America’s financial system to the disadvantage of the poor and the advantage of the politically connected: http://www.cato-at-liberty.org/2008/09/08/not-a-market-failure/

How dare the US government interfere in the workings of the free market!

)

Wonder how the TaxPayersAlliance would spin this one?