Politicians are stirring up hatred of Wall Street to pass their latest plans for big-government intrusion. Consider this press release from Senate Majority Leader Harry Reid:
Or this, from Nancy Pelosi’s blog:
“Nearly two years after… Big Banks and Wall Street almost brought down our financial system and resulted in 8 million American jobs lost”
In this climate, most businessmen hide, or worse, embrace regulation that may give them an advantage over smaller competitors. It’s interesting that both Goldman Sachs and JP Morgan support more regulation.
That’s why its refreshing to hear from Cliff Asness, who runs the AQR hedge fund, a rare businessman publicly making the case for freedom. In an open letter to Congress titled “Keep the Casinos Open”, he argues against banning “derivatives” and other financial assets. He points out that market activity is good for society, and that there should be a high burden of proof before government acts:
To “ban” something (a word statists really love), you need to show it does a lot of harm to those that are not a party to the transaction. Otherwise, again, be quiet and let free people transact …
[Wall Street] activity still makes society itself better off. If these “side bets” [on stocks] encourage more research, more time and energy, into figuring out whether the current price is too high or too low, they themselves can make prices more accurate.
And why are accurate prices important?
Consider… the case of John Paulson and the now infamous Goldman Abacus deal. Now imagine that instead of just John Paulson and only a few others, many people realized how ugly the real estate bubble was going to be… they would have moved prices…
Put simply, a more vigorous, more liquid, more active market for “side bets” like John Paulson’s would likely have made the real estate / credit bubble a less, not more, dangerous event.
He also points out that the politicians who want to regulate more are the same ones who screwed up in the past.
[T]he popular narrative is that this economic crisis was caused by Wall Street and derivatives. It was not. It was a real estate bubble caused by government, countless individual people, indeed Wall Street, and a bevy of other economic agents like mortgage and real estate brokers and a government-created oligopoly of underperforming rating agencies. Government was a prime culprit through the creation of disastrous GSEs, implementing politically correct social policy that warped the housing market, enacting land use restrictions in the bubble’s worst epicenters and, of course, promoting 20+ years of too-big-too-fail when it was not at all needed
Good for Asness speaking out.