Garet Garrett in The People’s Pottage (1953):
In a revolutionary situation mistakes and failures are not what they seem. They are scaffolding. Error is not repealed. It is compounded by a longer law, by more decrees and regulations, by further extensions of the administrative hand. As deLawd said in The Green Pastures, that when you have passed a miracle you have to pass another one to take care of it, so it was with the New Deal. Every miracle it passed, whether it went right or wrong, had one result. Executive power over the social and economic life of the nation was increased.
“Error is not repealed. It is compounded by a longer law”
Correct just look at the current financial regulatory reform being discussed.
The most important systemic risk driver, that of different arbitrarily set capital requirements for different assets, that which drove the banks towards the AAAs since there they could leverage themselves 62.5 times to 1 and, if they made a half percent spread on it, make a whopping 32 percent yearly return on capital on what was supposed to be the least risky; that which led the banks to abandon the small businesses and entrepreneurs because with them they could only leverage 12.5 to 1.. Well that was not even discussed.
Have you ever heard of a bank crisis that arose in AAA land, from what was perceived as having lower risk? Yes they all have.
Have you ever heard of a bank crisis that arose from lending to risky small businesses and entrepreneurs? No there’s never been on.
Does this not tell you something about how faulty our current regulations really are?
In the 3000 pages of financial regulatory reform discussed, the Basel Committee, the entity that sets capital requirements, was not mentioned even once. Does this not tell you something about how crazy it all has become?