The free market fallacy
Aug 17, 2007 Gelt
The Federal reserve cut the discount rate to ease the credit crisis, and not surprisingly, Wall Street — at least for today — is relieved.
Not everyone thinks this is a good thing. There are economic reasons to be for or against such a move. But the concept that this is some sort of offensive intervention in the free market is preposterous. Here’s what a fellow named George Zachar wrote to Glenn Reynolds:
I’m the Park Ave/Hedge fund guy who’s corresponded with you in the past.
It’s true that some Street crybabies are testing Bernanke to see if he’ll blink and elevate the level of moral hazard in the financial markets. But it’s not true that “all Wall Streeters” are doing so. Some of us, amazingly, want a robust self-regulating system that can operate with minimal government intervention. But there are no headlines in silence and maturity.
If that’s what George Zachar wants, he’s hedging on the wrong economy. “Silence and maturity” are not “hands off” policy decisions in a highly regulated economy — they are deliberate policy choices. It’s the Fed discount rate the central bank lowered, get it? The Fed already provides liquidity to the banking system; it’s already in the markets; the “system” isn’t remotely self regulated. I don’t think even George Zachar wants to live in a world where that went away over the weekend.
Now we’re only negotiating about the price.
August 21st, 2007 at 12:07 am
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