Robust financial markets support capitalism, they don''t
imperil it. But in 2008, Washington policymakers were compelled to
replace private risk-takers in the financial system with government
capital so that money and credit flows wouldn''t stop, precipitating
a depression. Washington''s actions weren''t the start of government
distortions in the financial industry, Nicole Gelinas writes, but
the natural result of 25 years'' worth of such distortions. In the
early eighties, modern finance began to escape reasonable
regulations, including the most important regulation of all, that
of the marketplace. The government gradually adopted a "too big to
fail" policy for the largest or most complex financial companies,
saving lenders to failing firms from losses. As a result, these
companies became impervious to the vital market discipline that the
threat of loss provides. Adding to the problem, Wall Street created
financial instruments that escaped other reasonable limits,
including gentle constraints on speculative borrowing and
requirements for the disclosure of important facts. The financial
industry eventually posed an untenable risk to the economy -- a
risk that culminated in the trillions of dollars'' worth of
government bailouts and guarantees that Washington scrambled
starting in late 2008. Even as banks and markets seem to heal,
lenders to financial companies continue to understand that the
government would protect them in the future if necessary. This
implicit guarantee harms economic growth, because it forces good
companies to compete against bad. History and recent events make
clear what Washington must do. First, policymakers must reintroduce
market discipline to the financial world. They can do so by
re-creating a credible, consistent way in which big financial
companies can fail, with lenders taking their warranted losses.
Second, policymakers can reapply prudent financial regulations so
that markets, and the economy, can better withstand inevitable
excesses of optimism and pessimism. Sensible regulations have
worked well in the past and can work well again. As Gelinas
explains in this richly detailed book, adequate regulation of
financial firms and markets is a prerequisite for free-market
capitalism -- not a barrier to it. --This text refers to the
Hardcover edition.
關於作者：
Nicole Gelinas, a Chartered Financial Analyst CFA
charterholder, is a Manhattan Institute senior fellow and
contributing editor to City Journal. She lives in New York
City.
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