Sunday, July 19, 2009

Blaming Liberalization IS NOT Cool

The current crisis has been partially blamed on the deregulation of financial markets over the past 10-15 years. The argument goes that this enabled evil bankers to sell mortgages to people with no chance of paying them back, nasty derivatives that were sold to dumb investors with no idea about what they were buying, etc. etc.

Since my undergrad, I'm a firm believer that governments should intervene as little as possible in private transactions, creating a level playing field for all everyone involved. The current crisis has showed, alas again, that individual excesses can lead to huge systemic risks.

People often mistake deregulation with BAD implementation of deregulation, specially when it is done without proper incentives and institutions to prevent people from gaming the system afterwards. (Note for future-post: Basel II might cause trouble in the future for the same reason).

This reminds me of a similar argument that I often see in the press about the failure of the "neoliberal / Washington Consensus" reforms to improve Latin American countries during the 90s.

You cannot have first-class markets if you do not also develop first-class institutions...

No comments:

Post a Comment