Market, Market, Who’s Got the Market? (Updated)

This morning Paul Krugman is skeptical of the Obama Administration’s apparent devotion to the capital markets:

Leave aside for a moment the question of whether a market in which buyers have to be bribed to participate can really be described as “better functioning.” Even so, Mr. Summers needs to get out more. Quite a few economists have reconsidered their favorable opinion of capital markets and asset trading in the light of the current crisis.

But it has become increasingly clear over the past few days that top officials in the Obama administration are still in the grip of the market mystique. They still believe in the magic of the financial marketplace and in the prowess of the wizards who perform that magic.

He then wanders off into the tall weeds, looking for partisan advantage where there’s precious little to be had. Over the period of the last thirty years we’ve had deregulation of the financial sector under Democratic Presidents and Republican ones, under Congresses with Democratic majorities and those with Republican majorities. Whether for good or ill deregulation of the financial sector has been a process that has been ongoing for more than a generation with bipartisan support.

Frankly, the similarity between the Geithner Plan and the functioning of a free market isn’t unlike that between professional wrestling and a street brawl. Does anyone really believe that there will be no qualifications required of “investors” in the Geither Plan? As soon as buyers must meet qualifications it isn’t a free market any more, merely the government picking winners and losers.

And right on time, as if in antiphonal response, Alan Greenspan, the pom-pom girl for what passes for free marketeering, has an op-ed in the Financial Times on the challenges of managing risk in the financial sector. I won’t bother to critique it in detail—that’s been handled by Yves Smith and Henry Blodget.

I will, however, make two brief comments. The first is addressed to Mr. Greenspan: where was you, Charley? Sphynx-like statements about “irrational exuberance” do not a risk management regime make.

The second is this. How in the world does anyone think a national government can regulate an international financial industry? I would prefer smaller, more local banks although I acknowledge the many problems with view.

But what structures would need to be in place to regulate a truly international financial sector?

Update

Marion Maneker at The Big Picture makes the same point I did about Alan Greenspan’s tenure at the Fed at somewhat greater length:

The Fed Chairman is a bank regulator. To have the Chairman who presided over the biggest failure of the banking system lecture the world on regulation is breathtaking, not to mention tone deaf. Whatever the complexities of regulating the shadow banking system or supervising the ratings agencies are, acting as if the Fed Chairman bears no responsibility for the excesses that took place on his watch is a recipe for moral decline.