Phill Gramm still doesn’t get it, at all..

Guess who wrote this: “I don’t see why conservatives ought to defend a system that permits securitizing mortgages (or car loans) in a way that seems to make the lenders almost unaccountable for the risk while spreading it, toxically, everywhere else. I don’t see why a commitment to free markets requires permitting banks or bank-like institutions to leverage their assets at 30 to 1. There’s nothing conservative about letting free markets degenerate into something close to Karl Marx’s vision of an atomizing, irresponsible and self-devouring capitalism.”

It’s somewhat surprising, but it’s William Kristol, an important conservative thinker and NYT columnist. It’s a point of view which we have set out numerous times here (check here, for instance). Free markets can only really deliver their amazing benefits if they are properly regulated. This point holds more true for financial markets, because these can scale up and down much more rapidly, the possibilities for opportunistically taking advantage of information advantages are rife, and it performs a central systemic role in the economy.

From the publication of Upton Sinclair’s “The Jungle” in 1906 about the terrible conditions in the meatpacking industry, it has become almost self-evident that markets need regulation in order to function properly, but from the mid 1970s onwards, regulation seems like a dirty word.

Anyone arguing this case was branded a socialist. Apart from showing a very limited understanding of that term, this demonstrates the dangerous extremes at which these free marketeers have descended to. Regulation exists to safeguard the workings of free markets, ensuring they work efficiently and expediently.

The free marketeers have a very simplistic, text-book like notion on the functioning of markets. These are the prime responsible people for the current mess.

It’s good to see that even within their own ranks, this lesson is now slowly gaining currency. It’s too late for helping us out of the present mess, but it helps avoiding the next one.

And Kristol still looks to be in a minority:

Gramm: Deregulation Not to Blame
Monday, November 17, 2008 10:42 AM
By: Julie Crawshaw

  • Deregulation “played virtually no role” in the housing collapse and credit crisis that now threaten economies across the globe, according to former Sen. Phil Gramm.
  • “Some people look at subprime lending and see evil,” Gramm told the New York Times. “I look at subprime lending and I see the American dream in action.”
  • “My mother lived it as a result of a finance company making a mortgage loan that a bank would not make,” Gramm says.
  • During his time in the U.S. Senate, Gramm consistently voted to block legislation that would have curtailed deceptive or predatory lending.
  • He also pushed through a provision that ensured that the collateralized debt obligations (CDOs) made up of subprime mortgages would be virtually unregulated.
  • “There is this idea afloat that if you had more regulation you would have fewer mistakes,” Gramm says. “I don’t see any evidence in our history or anybody else’s to substantiate it.”
  • Increasingly, economic observers agree more regulation is needed. Yet some worry the pendulum is swinging too far in that direction.
  • “There is an inclination, when you get into problems like this to go to an extreme, to over-regulate,” Commerce Secretary Carlos Gutierrez told CNN.
  • “I think we have to be careful, we have to find a balance and we can’t over regulate so that five years from now we’re trying to claw our way back because we overdid it,” Gutierrez says.

Thank you Pill. You must still be dreaming, because if you haven’t woken up by now, you’ll probably never will..

This is what ideology does, it blinds people to reality. And it’s this simplistic and blind free market ideology that is at the root of the rot.