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Saturday 6 March 2010

This is a profound denial. The gambling on Wall Street was not caused by the equivalent of errors in arithmetic. It was caused by a corruption of the system by which we regulate those markets. No true theorist of free markets — and certainly none of the heroes of even the libertarian right — believe that infrastructure markets like financial systems can be left free of any regulation, including the regulation of rules against fraud. Yet that ignorant anarchy was the precise rule that governed a large part of our financial system. And not by accident: An enormous amount of political influence was brought to bear on the regulators of these core institutions of a free market to get them to turn a blind eye to Wall Street’s “innovations.” People who should have known better yielded to this political pressure. Smart people did stupid things because “the politics” of doing right was impossible. Why? Why was their no political return from sensible policy? The answer is so obvious that one feels stupid to even remark it. Politicians are addicts. Their dependency is campaign cash. And in their obsessive search for campaign funds, they let these funders convince them that for the first time in capitalism’s history, markets didn’t need the basic array of trust-producing regulation. They believed this insanity because it made it easier for them — in good faith — to accept the money and steer financial policy over the cliff. Lawrence Lessig

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