The Markets Handled Amaranth – No Regulation Required

The fear after LTCM ($4.6b in losses), which moved the fed to organize banks into a bailout of the hedge fund, was that there would be a global financial crisis. We’ve seen the blasé market reaction to $6b losses from Amaranth, the markets didn’t care. Despite this proof that the capital markets are more robust than ever the NY Times thinks that regulation is required.

The Times believes that speculative losses can be prevented by additional regulation. As if the state, unencumbered (or do they think this means unbiased?) by price signals, can value and allocate risk better than the market. The costs of regulation in any industry are well known: higher costs, less innovation, entrenchment of established players, and the Leviathan expanding its domain. Who benefits from that?

It’s a standard move in the statist playbook; whatever the problem is, it can be solved only with more regulation. Just like socialism, the consistent failure of regulation does not discourage the statists, it encourages them to try again and again. “This time it’s different. The last time they didn’t do it right, but we know how” are the shibboleths of this poisonous mindset. Meanwhile the markets have already moved on.