Sunday, October 05, 2008

All the wrong lessons

Today's NY Times includes "Pressured to Take More Risk, Fannie Reached Tipping Point ... Wall St.and Congress Fueled Fateful Choice." The longish article includes: "shortly after he became chief executive, Mr. Mudd traveled to the California offices of Angelo R. Mozilo, head of Countrywide Financial, then the nation's largest mortgage lender. Fannie had a longstanding and lucrative relationship with Countrywide, which sold more loans to Fannie than anyone else."

The Times also includes "A Snarl of Regulation" along with a spaghetti diagram of who regulated what and whom. There is also "Goodbye To All That" which takes off from the sentiment of Steve Fraser, that "It's the beginning of the end of the era of infatuation with the free market."

We're going to hear a lot of this, in spite of evidence that we have anything but free markets in action. Extend the regulation and politicization that we have and extend that to trades that are currently unregulated? Why? Inept regulation and/or politicization will follow. More competition and fewer bailouts are out of vogue.

Market participants (even the specialists) in all fields are just people. They will do things right and they will make mistakes. Letting them reap rewards when right and letting them fail when wrong is the only known antidote. But that approach will surely recede as all of the wrong lessons are drawn on a daily basis.