The global economic meltdown caused a lot of anguished analysis sometimes going so far as to suggest the merits of scrapping capitalism itself as the organizing economic system. Some of the extreme excesses and abuses that came to light seem to make the argument compelling, at the very least on an emotional level.
I’m not persuaded the baby and the bathwater both have to go but I have come to re-think a number of the previously “accepted” orthodoxies of laissez-faire capitalism, in particular, the lauded benefits of deregulation.
Free market economies, as distinct from centrally-planned ones, are not only clearly superior in efficient resource utilization but are enormous drivers of social progress (if you doubt this, read Matt Ridley’s The Rational Optimist). Nonetheless, there is clearly a point where a “good thing” in excess, is toxic. I think that’s where we’ve gotten to now.
There’s now plenty of evidence around that (otherwise) law-abiding citizens will not just push the envelope of propriety, but blow it up, if it means scoring a few more digits in their bank account, whether or not it’s already full-to-bursting. Unrestrained and non-tempered greed gets the best of ‘em when “anything goes”.
In reading Satyajit Das’ book, Extreme Money, I was astonished to find that, at the extreme margins of the run-up to the financial crisis, ‘SIV’s’ (Structured Investment Vehicles) were being created, entirely off the books of “legitimate” financial institutions, whereby $1 of real capital ended up ‘supporting’ between $20 and $30 worth of loans. When, inevitably, the piper called, it was the taxpayer who ended up settling the state of accounts for the so-called masters of the universe.
Although I’m seldom in favour of knee-jerk legislation, apart from re-instituting Glass-Stiegel, tightening up capital reserve requirements and limiting the use of “off the books” investment vehicles, we should be giving some thought to whether specific examples of rapacious greed, coupled with indifference to risk and the off-loading of financial consequences, shouldn’t be “structured” as a capital crime.