Today is the last day to vote for the free market and against overregulation in a debate I am participating at the web site of the magazine The Economist. If Open Market readers aren’t enthused about any of the candidates in this year’s presidential election, here is a venue where their vote could make a difference and the principles of freedom are definitely at stake. If CEI and I and the free-market side win this debate, it could have a positive influence on the larger debate over regulation of financial markets.
I am arguing in favor of the proposition, “By intervening to regulate business and financial risks, governments have made things worse.” To vote for me and for less regulation, go to the site, http://www.economist.com/debate, register (registration is free), and cast your vote as “PRO.” Voting continues all through today, and will cease tomorrow at an unspecified time.
The voting is neck and neck. I am now winning 52 to 48 percent, after being down earlier this week 47 to 53 percent. Every vote counts for the free-market to squeak out a victory in these challenging times when much of the media is blaming deregulation for all the ongoing financial woes.
Today, after being attacked by three “featured participants” arguing for an ever-expanding regulatory state, I finally get an ally among the guest commenters. Thomas Firey, managing editor of the Cato Institute’s magazine Regulation, writes a masterful refutation of the nostalgia among the commenters for New Deal banking regulations.
“Let us consider just how well US banking regulation ‘worked’ in the post-war period,” Firey writes. “[T]hroughout the post-war period, costs to borrowers were much higher than they are today. Since the banking deregulations of 1980-91, terms for both depositors and borrowers have improved greatly.”
Firey also argues that while stricter lending regulations may have benefitted the lenders and borrowers involved in the 1 million subprime loans now in default, “what of the other 5 million subprime loans that are in good standing, most of which have provided people with homes that they otherwise could not have purchased?”
I make many of the same points in my “Closing Statement” that was posted yesterday. “Indeed, when looked at in terms of distribution, the housing boom’s benefits may have been even more widely dispersed than those of the tech boom,” I argue. “Nearly 70% of US families and close to one-half of American black and Latino families now own the homes in which they live.” I remind readers that the overall foreclosures, while numbering in the millions in correspondence with the dramatic increase in the number of homeowners, is still only 2.04 percent of all mortgage loans.
I argue that while some volatility is the price we pay for a dynamic economy that improves everyone’s standard of living, “volatility can be much reduced through the introduction of what we should call a second stage of deregulation. Let us deregulate private risk management, as we have risk-taking, for ordinary investors as well as hedge-fund fat cats.”
As an example, I propose lifting restrictions that make it difficult for mutual funds to short stocks and other securities. Allowing mutual funds to engage in the same strategies as the smart hedge funds that shorted subprime loans would bring gains to middle-class investors and would have sent a stonger signal to the markets that something was wrong with mortgage securities.
Appreciate any feedback or suggestions from Open Market readers on deregulating risk management. In the meantime, make your freedom-loving voice heard today in the Economist debate!