This article discussed corporations saying, “We’re too busy dealing with the economic crisis to be regulated right now! Come back later!”  I liked this comment:

“I am too busy dealing with the financial crisis right now, can I stop paying taxes?”

That made me laugh and cry at the same time. If we tried it, the State would kill us. First a nice letter, a second one, a phone call, then a knock at the door, then a drawn gun, then a bullet, if you resist.

In order to understand where we are today, you have to understand the series of lenses we look at the problem through. These lenses distort, not clarify the problem.

1) We have central banks artificially controlling interest rates. This distorts the price of money and causes market actors to make mal-investment in one area of the market neglecting others.

2) We have central bank/private banks who usurped and monopolized money production away from a free market activity into the hands of a cartel. This cartel controls the volume and value of a form of money that is entirely created out of debt. Debt carries interest and must be repaid. Money to pay off the interest of old loans must come from the principle of new loans, which is entirely Ponzi. If the volume of old loans being retired exceeds the volume of new loans issued, our money supply contracts. Unchecked, our dollar collapses in hyper-deflation.

A free market would not ascribe value nor tolerate the imposition of government paper tickets we call money on it, unless violence was utilized by government to create artificial demand for it (i.e. payment of taxes in their fiat).

3) Years of politically expedient legislation imposed upon the banking industry such as the Community Reinvestment Act which mandated banks lend to people who otherwise could not afford a to maintain a loan for a home. It sounded nice, but ended up wreaking havoc on both parties.

4) The number of *MASSIVE* moral hazards existing in the market, again a central bank and GSE’s such as Fannie/Freddie.

What we have is the banking industry “regulated” (cartelized) into an inherently unstable fractional reserve banking model. Not that they mind; the biggest of them will have the central bank step in as “the lender of last resort” to bail them out. They like this arrangement as they can unilaterally focus on the return side of given instruments and neglect the risk side. Does this sound like a HUGE moral hazard to you? That’s because it is.

In a true free market, there would be a wide spectrum of banking. On one end, there would be 100% reserve banks (i.e. warehouses) and on the other end there would be banks practising fractional reserve models of one kind or another, but would be watched most vigorously by other banks. No-one distrusts a bank more than bankers.

We suffer the “captured regulators” problem. Regulatory agencies are the revolving door between the State and the industry being regulated. Often, “representatives” of controlling interests in the industry are plucked to write rules/legislation backed by the State. On the surface, this sounds like a good idea, as most would see plumbers regulating banking as not a good idea, although these days, I wonder if they wouldn’t do a better job.

Once the representative as done a good (corrupt) job if implementing legislation/regulation insiders can afford to shoulder but inhibits incoming competition as they cannot afford it, this results in poorer quality and higher prices for the rest of us. The representative is then ejected back out into the industry to an awaiting posh job.

The first commodity to be traded in a regulated market are the regulators.