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Today The New York Times published an article titled “At JPMorgan, Trying to Do the Right Thing Isn’t Enough”.

It’s supposed to be a cautionary tale about how difficulty is to maintain big banks within regulatory rules. To be precise, they mentioned how Stephen Cutler (Securities and Exchange Commission chief of enforcement 2001 – 2005) was all fire and brimstone while he was up, and now that he works for JPMorgan, he was involved in several major wrongdoings. The truth is that all regulators suffer from uncommon sense.

The article in itself is totally laughable. It assumes that regulation is the only way to ensure that Banks work within certain boundaries and do not try to manipulate the markets. What a stupid concept!!!

The truth is that regulation will always fail, simply because business is faster, more adaptable and extremely well incentivized to generate profits. It is absolutely preposterous to tell a bank that it can make profits and then create a massive set of bureaucratic rules establishing how the bank may not generate profits. It is just plain idiotic.

Let’s be clear. The market is an evolutionary laboratory. A business either evolves or dies. Evolution does not play nice or by bureaucratic rules. Evolution is not considered or attentive. Evolution does not wait for a regulatory go ahead or agrees with idiotic rules. Evolution is do or die.

And banks are not excepted from this rule.

Of course, in our current system where the economy is “managed” (which is code for screwed-up), there are many ways to make money ignoring those stupid rules that everybody else needs to follow. Particularly if you are too big to fall, as JPMorgan is.

The problem is not that JPMorgan cheated, the problem is that rules that can be broken were imposed in the first place.

The solution is simple: remove all the rules and there will be no cheating.

Yes, it’s that simple.

In a true free market, you cannot cheat simply because everybody else can too. There are no artificial rules that only the powerful can break and benefit from. Everybody is in the same boat. There are no governments to go crying to or politicians to lobby.

In a true free market you could potentially cheat, but then, once the cheating is discovered, the market will punish you harder and swifter than any regulator can.

JPMorgan had a large number of losses that it hid. So what? The shareholders and the stock exchange will punish it.

JPMorgan attempted to manipulate the Libor interest rate. So what?  It is just ridiculous to believe that everything is crystal clear and on the level. Most financial elements are manipulated, precisely because the nature of markets is manipulation. It is idiotic to pretend that this is not taking place and just add a coat of regulation expecting it will all be OK.

The truth is that a free market is the very best alternative we have to get prosperity. It is a given that every single economic entity will try to cheat as best it can. This is you, me, your friendly corner bank and JPMorgan. Everybody. That’s the nature of a free market. Buy low and sell high. Is this fair for the buyer? Hell no! This is the very primary cheating rule of every market. It just is out there, in the real life. It is just how widespread prosperity is achieved.

In an Absolute Austro-Libertarian system the market is the great equalizer. Nobody is more clever than the market itself, and as there are no regulators, there are no rules to break to get an undue advantage of.

Take for example JPMorgan’s manipulation of the Libor interest rate. You don’t like it? You feel cheated? Simple, but JPMorgan shares and benefit from it.

Yes, it’s that simple. You don’t want to take risks? There will be many bank rating agencies that will be tell you everything you want to know about a specific Bank… for a small fee.

You can then choose to your hearth contempt. High risk or low risk. Up to you.

There is no need for regulators because the free market balances itself. Every profit differential (buy low and sell high) tends to zero over time precisely because there are more and more people taking advantage of it.  Eventually, there is no advantage and the benefit disappears by itself.

Case in point. Your bank cheats and makes extra profits = extra share distributions. You buy shares to profit from it. Other banks begin to do the same. Other people buy other banks shares. Eventually everybody cheats and the extra profits evaporate simply because there is nobody left to be cheated.

Yes, it is that simple.

Regulations are based on uncommon sense. You are not having delusions. Your common sense is working just fine; theirs isn’t.

Note: please see the Glossary if you are unfamiliar with certain words.



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