Quasibill,
Just thought of something. OK, let’s stick with your metaphor. The barn is on fire right now. What do you do? Open the doors to let the horses out or let them burn while correctly assigning blame to the correct arsonist?

In the meantime, let’s get some regulation going.

For example: some “free market” outfits are up in arms over the proposed introduction of a Canadian-style card check system for NLRB union certification. Now, if they just want to scrap Wagner and Taft-Hartley, and abandon the whole model of bureaucratic unions as enforcers of contracts against the rank and file, I’m all ears. On the other hand if they want to leave that model intact, but whine about making the *method* of certification more genuinely democratic, they can ESAD. If we’re going to have a statist framework of labor relations anyway, then by God better a statist framework that helps workers than one that helps bosses screw us.

What we have is the worst of both worlds in Fannie and Freddie: Investor goes nuts because they assume the government has got their backs. In the end when the shit hits the fan, the gov. then have no choice but to step in to put out the fire.

That’s the whole point!

***No, they were not!!!!***

They were traditionally extremely risky, which is why noone bought them the first thousand times they tried to market them. It was only when the government stepped in to socialize the risk side through Ginny Mae that they became safe.

And then, people saw how much money people were making on the Ginny Mae MBSs, they jumped in on the Freddie Mac and Fannie Mae MBSs in a classic follow the money behavior. And then, when the Greenspan put came into play, people jumped onto the “private” MBSs.

So I’ll stick to my analogy because I think yours gives entirely too much credit to the utility or value of MBSs in the first place.

Let’s not forget that MBS were traditionally very safe.

What made the situation combustible in recent years was a combination of factors from Greenspan’s low interest rates to the rise of exotic products such as sub-primes.

If I were to come up with my own analogy, this is more like a clueless parent giving the car keys to an irresponsible teenager who then drinks and drives and gets in an accident. The vehicle, MBS, is just one of the contributing factors in the accident.

You have an arsonist who sets fire to a barn, killing some horses inside. After the fact, what do you say about the incident?

a) The arsonist was wrong for not opening the barn doors after setting fire to the barn; or

b) The arsonist was wrong for setting fire to the barn?

In my view, saying that the federal government’s lack of regulation caused the MBS mess is option a). The fedgov set fire to the investment market, inter alia, by creating a market for MBS. Failing to regulate its creation properly is not only beside the point, but quite likely to have been the purpose in setting the fire in the first place.

That’s a problem, and it is not to say that regulation is bad or unnecessary. It’s to say that it’s not addressing the root cause of the problem. Yes, we’ll always need a healthy corps of boys with their fingers in the holes of the dike if we refuse to repair the dike. But another way is possible.

Frankly, regulatory constraints on how those poor, put-upon capitalists can abuse wealth and power granted by the state are at the very bottom of my outrage list.

The libertarian approach to reducing the size of government ought to be “First, do no harm.” Eliminate the primary forms of government intervention from which privilege and unearned wealth are derived, and save for last the secondary forms of intervention aimed at ameliorating the effects of that privilege. In many cases, the second form of intervention will become moot, or nearly so (for example, the minimum wage might be relevant to a lot fewer people if Taft-Hartley were repealed).

Where the state is at its worst, it drives out competing watchdogs but then fails to watch over those most in need of monitoring.

“Fannie and Freddie are both poorly-regulated and not part of a free market.”

Condition b (not being part of the free market) necessarily implies condition a (being poorly regulated), by definition, if free market is defined properly.

As for regulation, I’m all for it, as long as it is voluntary on the part of all parties. I agree that some “regulation” is a good thing, and that the question of what level is a very complicated one. Which is why, pursuant to Mona’s favorite theorist, I don’t believe any one centralized organization can possibly achieve the proper balance - they will never have enough of the proper information at their disposal. The distributed knowledge of voluntary agreements between independent agents solves the problem far better than any dictator or fiat by bureaucracy.