Northern Rock is a British bank, mainly a savings bank. Recently it suffered a run which would have bankrupted it had not the Bank of England come to the rescue, fearful of a total catastrophe. Northern Rock was involved in the US sub-prime fiasco. As of this week the Bank of England has had to pump in 32 billion pounds to keep Northern Rock afloat. Thirty two billion pounds! And into a bank no one has heard of, unless you live in the North of England. It ‘s boss has just been fired.
Those who preach light regulation, non-intervention and the perfectibility of free financial markets have to explain why $200 billion worth of valueless mortgages were allowed to be parceled up and sold round the world for years with the full knowledge of the US Federal Reserve and Mr. (Libertarian) Greenspan, and what these regulators thought would happen.
Now many people will lose homes, junior people in financial services will lose jobs, but most importantly the banks have lost the confidence (again) of the general public and paralysis in financial markets means that the normal business of commercial lending is on hold and will be for months.
Supporters of the financial system will point to this and tell you it shows that capitalism works.
These free marketeers can be really stupid! And yet they never stop peddling the same prescriptions and never learn. I wish they were not so insufferably arrogant!
Interesting site Robert.
Some thoughts on this topic:
Why should one, as an epicurean, be concerned with such situations?
Ultimately there are individual investors that can make rational decisions about investment choices, e.g. whether or not to provide the capital to Northern Rock for them to use for bad investments.
Agreed that some “innocents” are impacted, e.g. junior people at the company, as this is indeed the way capitalism functions.
But destructive creation has seemed to provide far more benefits to outweigh these associated costs, even for those not acting rationally in all choices, as opposed to in more controlled economies where the downside *may* be more limited but so too is the upside greatly restricted.
In any case if the individuals involved observed an epicurean approach to things then the situation should not be as disruptive for them as, say, someone living extravagantly and largely dependent on this particular bank.
Keep up the good work.
Your comments are very rational and follow the prescriptions of modern Epicureanism. I appreciate what you are saying and it has validity. The problem is, where do you stop? Do you allow a total free-for-all, or do you try to create a level playing field with more-or-less mutually agreed rules?
One rule might be, for instance, be transparent and honest with your investors. Would Epicurus have objected to that? I think not. So how do you achieve a measure of trust in the public that will allow the capitalist system to work efficiently? No government oversight results in chaos, too much is stultifying and not in anyone’s interest.
Do you agree that this is a sensible grown-up matter to Debate?
Well now, your argument is fataly flawed. You have set a straw man!
To blame the free markets for the actions of a government controlled, heavily regulated, financial system, is just absurd!
Really!
And so, the GOVERNMENT, the very same government, that enabled this nonsense, is going to SOLVE IT? DON’T THINK SO!
In a truly free market, this never would have happened. Well, maybe it would. But, yes, the market is finally working to fix the problem, by bankrupting the crooks who did it. Governments function, now, is to put a lot of these people in jail, and that is very right and proper for it to do.
To say that “in a truly free market, this never would have happened” is strange. You have a very happy view of human nature that seems to infer that , left to themselves everyone looks after his neighbor and all is sweetness and light. On the other hand, I believe the human race to be selfish and greedy. Governments were invented in the first place to be a mediator between the rich and powerful and the poor, sick, mentally incapable etc. It is ironic that Americans, 92% of whom say they believe in God , 72% of whom go regularly to church, can hold views that support the law of the jungle.
A free economy is not “the law of the jungle”. What would you do, forbid people from buying houses? Which people, which houses? Do you think that the people who you forbid might disagree with you? Are you God, able to tell who can have a house and who cannot?
Governments were invented to make the property owners secure in their property. I doubt they had much interest in the poor. But, over time, the rich, or at least the wise rich, discovered that to be secure in their property, the rest of society also had to be secure in theirs. Mutual self-interest.
But what does “secure ” mean? That consists of two things: being able to keep that which you have earned, and being able to take what another person has earned, if that person owes you an obligation of some kind. In other words, the rule of law applys equally to all, or it is meaningless, and provides no security.
So security is composed of the aquisition of property, and also the lawful taking of property. The housing bubble is an excellent example of this. People aquired property, through means most foul, but it turned out, they were not able to meet their obligations. Now, a gaggle of softheads want to deny the second part of the security bargain, the rightful taking of property to meet those obligations. They do this at their peril: they have forgotten! WITHOUT THE TAKING OF PROPERTY, THERE IS NO SECURITY. Who can stand then, in the winds that will blow, when the rule of law is broken?
Not to mention the outright immorality of allowing the crooks and scam artists to keep “their” home, at the expense of the wise, and law abiding. For shame. It’s these scam artists, these liars and thieves, who made housing, thru their manipulations and greed, and flipping, unaffordable for honest and hard working people! But who thinks of them, the honest people, who never bought a house, who had to do without, while dishonest crimminals bought and sold like crazy ferrets? The flippers derserve everything they get, and more. Much more.
In addition, look at it from a purely practical standpoint. Who will loan mortgage money now, if they know it can be stolen, confiscated, by the unruly mob? Where will the mob live then?
How this is the law of the jungle, well, you got me! It is precisly the reverse! Those who wish to subvert the taking of property, through just legal means, are the true jungle beasts. Rmember Epicurus: BOTH PARTIES MUST BE SATISFIED, OR THEIR IS NO CONTRACT.