"A Man's a Man for all that!" - Rabbie Burns

"Religion? No thanks. I prefer not to outsource my brainwashing." - Bunc
Trying to get your average Joe creationist to understand the phrase scientific theory is as hard as getting a fish to enjoy mountaineering. Its an unimagined world for them - it requires a complete reversal of their normal modes of thinking and being. The fact that humans could explain the complexities of this world without a creating God is a world view they cannot grasp. It's like asking a tuna if it appreciates the view from the top of Mount Everest. Bunc

Dec 21, 2008

Private enterprise hubris and the public good

During the boom years before the present credit crunch there was much talk about the efficiency of the markets and attempts at rolling back the activity of the state. The market knows best became the mantra and areas of provision which had for a time, at least in the UK, been predominantly the preserve of State or Local authority provision came to be opened up to private enterprise.

This wave washed through our energy utilities, it saw provision of residential care for older people massively opened up to private firms, it ushered in the expansion of private hospital provision and it resulted in the massive selling off of public sector housing.

Much of this was beneficial and necessary. Unfortunately, as is so often the case in life, one can have too much of a good thing. Political parties became enamoured of private enterprise and forgot the basic lesson that no means of organising human affairs is infallible. There are risks and downsides to all things.

But "the market knew best" and the politicians trusted the market and private enterprise. We fell for the snake oil of "light touch regulation". We listened when the private enterprise spivs and racketeers told us all that regulation "stifled competition and enterprise". We let them run with their private enterprise model to the end of a very long leash in the financial sector. Look where this has got us.

We have only ourselves to blame of course. We allowed ourselves to fall for this spiv snake oil remedy.

A recent report by the Audit Commission in the UK shows that our public Local Authorities are in fact quite well prepared for the down turn. It appears that they saw it coming and took actions to prepare themselves. Not so our banks. Not so our major corporations. Not so the fat paid-too--much chief executives in their plush private enterprise boardrooms.They all failed; completely and utterly.

These spivs and speculators should be thankful this Christmas that they have so far escaped being lynched by the mob and strung up on their own expensive Christmas trees. They have wrought disaster not only on this country but worldwide. Many tens of thousands of people, in the coming year or so, will pay with their jobs for the incompetence of these charlatans.

Hopefully there will be less hubris in the future from the private sector. Private enterprise does not have the answer to everything. It is not intrinsically better than the public sector; it does some things well and in other areas it can be very dangerous if left uncontrolled.

There is a role for both the public and the private sector in a modern state. It is about time our politicians took a more adult view of this and realised that while private enterprise can indeed deliver wealth and growth it can and does also harbour massive greed and irresponsibility.

What we need urgently is a framework of regulation for both the public and the private sector which is realistic and flexible and where regulators have the powers and resources to properly assess and control risky behaviours for the public good.

4 comments:

Looney said...

I don't know how things are in the UK, but over here it is quite clear that the housing/credit bubble, along with Detroit's problems, were the direct result of massive, systematic regulatory interference from government. Deny a deadbeat a loan and you will be hit with a racial discrimination lawsuit. Washington was ordering Detroit to produce cars that were losers, and the unions were basically a government organized extortion racket. But perhaps you have a free market over there.

Bunc said...

Looney, the housing credit bubble was hardly a result of government interference. I would be interested if you could cite cases where "deadbeats" where denied loans and a bank was then hit with a racial discrimination lawsuit.

tthe reason the banks started to tumble like a pack of cards was because they and other financial dealers had created and traded complicated derivatives which they didnt understand. It is arguable that even the folk ( usually mathematicians and ex physicists I gather) who created the complicated mathematical equations that supposedly managed the risks didn't understand how these derivatives would act in a more chaotic market.

Not only that but the bankers seemed to forget all about the concept of due dilligence. they traded mortgage and other debt packakges like it was pass the parcel with no one knowing what if anything was inside the next layer of teh parcel when the music stopped. Unfortunately when the music did stopped and the package was unwrapped it turned outthat it contained irredeemable IOU's for trillions of dollars. Due dilligence? My Arse.

If the threat of lawsuits was the reason then how come they can now refuse credit to "deadbeat" applicants. How come they can repossess homes of "deadbeat" defaulters? The law hasn't changed and the lawyers are still looking to make a buck. Strange that the discrimination lawsuits aren't flying.

Your analysis is a bit short on logic my friend.

As for Washington ordering Detroit to produce cars no one wanted - I hardly think you can blame Washington for the fact that the US car industry has patently failed to modernise and is producing unreliable gas guzzlers. No, this was hubris of the first order.

They thought they were too big and powerful to worry about the winds of change blowing in the world and the increasing concern of the consumer for reliability and economy. I have no doubt the unions played their part in resisting change also.

The role Washington played was to give a friendly ear to the oil lobby who continued to sing their siren songs about everything being just fine and dandy. No need to economise. No need to fret about gas consumption. No need to worry about climate changge. Just keep pumping the oil and sucking it up into your 4x4's and everything will be fine. Until the oil price rockets of course.

If you seriously think that de-regulation is the answer to what we have seen happpening this year then you are certifiable!

AB said...

Snipped below from Bloomberg;


Former executives of the three major raters told a House Oversight and Government Reform Committee hearing Oct. 22 that they had relied on outdated models to maximize profits.

Originators of mortgage-backed and asset-backed securities and collateralized debt obligations “typically chose the agency with the lowest standards, engendering a race to the bottom in terms of rating quality,” Jerome Fons, a former managing director of credit policy at Moody’s, testified.

The U.S. Department of Housing and Urban Development said Dec. 4 that it would investigate a Nov. 18 complaint by the National Community Reinvestment Coalition, a Washington-based advocate for affordable housing. Moody’s and Fitch made “public misrepresentations” about the soundness of subprime securities that led to “imprudent” mortgage lending, the coalition said.

rummuser said...

Bunc, you have visited my blog. My tag-line is Wisdom by hindsight. I am old enough to have seen many situations similar to what we are seeing everywhere, except that this time around the severity is much greater in some parts of the world. We can bring about all the regulations that we can think of and a few years down the line some other MBA types will come up with some other great big idea which will once again draw us down. That is the way it has always been and I do not see that changing.

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