Are the Markets Self-Regulating?

Recently I watched the movie Inside Job, a documentary about the 2000s housing bubble and credit crisis. It was a bit one-sided, focusing almost exclusively on the greed and corruption of Wall Street investment banks, but pointing few fingers at the Federal Reserve or Washington.

Still, the outrageous swindling and chicanery of Wall Street financial companies, coupled with obscene compensation given out to executives who wrecked their own companies, ruined investors and drove the economies of the world to the brink of disaster was (it seems too little to say) hard to deny or defend. The fact is a bunch of rat finks made themselves filthy rich by exploiting a system which allowed them—no begged them—to pass the risk to others and keep the benefits for themselves.

In Margin Call, a fictional movie about the same subject, the head of an investment firm—played with elegant ruthlessness by Jeremy Irons—sagely notes, "There are three ways to win in this business: Be first, be smarter, or cheat." In the 2000s Wall Street cheated. Risk, as I once wrote, is the price investors pay for seeking profit. Risk can be controlled; but the only way it can be eliminated is to cheat. Wall Street sought to make high profits at little risk. So, being the greedy but craven bunch they were, they cheated.

They were able to cheat because of wrong-headed deregulation, lack of enforcement of laws which did exist, obscurely complex investment creations, perverted incentives, and failure at the highest levels of government to do anything to challenge the problem, including turning off the flow of cheap money that fueled the binge.

It is jaw-dropping, given the abuse of deregulation by Wall Street, that their lobbyists are still to this day chirping the free market song in brazen resistance any to real reform.

Now, I believe in free markets, until they start sending us over the brink of oblivion. But the problem isn't really markets per se. In a pure sense a market is a good thing: An open arena of up-front, transparent buying and selling where deals and profits are sought and the shrewdest traders and investors win. Nothing is wrong with that.

Wall Street, at least as practiced by these major investment banks in the 2000s, wasn't really a market anymore. It was casino where the odds were so slanted to the house that the game wasn't even fair anymore. Here were the rules of the game: Investment firms sought profit by engaging in risky investments. If the investments succeeded, they won. If they lost, they still won because someone else got stuck with the risk. And even if the risk did come home to roost the top players had already pocketed their bonuses and deployed their golden parachutes. Heads I win, tails you lose. These rules have not changed much yet.

A lot of outrage is expressed over the compensation of financial executives. But that compensation doesn't bother me except to the extent that it motivates those getting it to indulge in practices which threaten the rest of us. I don't care how rich someone gets. It's no skin off my nose unless what he does is destructive  Unfortunately, it's more than clear it is. There is so much money lying around that the feeding frenzy threatens to destroy the whole food chain. If that's not a situation that begs for common-sense regulation I don't know what is.


Markets are self-regulating in the sense that if something is a bad investment, eventually investors figure it out and stop pouring money into it. No human organization could manage the millions of actions and reactions which automatically set prices in the market place. The Soviet Union tried, and collapsed under the burden. The beauty of a free market is that much of it actually is self-regulating.

But market participants aren't self-regulating. I'm a trader and I know. There is nothing more unhinged than the average trader or investor wide-eyed with greed or hysterical with fear. The most basic, raw, selfish human emotions can consume those who engage in the financial game. Forget for a moment about regulation to protect the rest of us. They need it to protect themselves.

Why are the Poor Poor?

My church pastor has defined being poor as not having "enough." That seems a good starting point. But it raises the question, What is enough? I would say that enough means having adequate food for health; adequate clothing and housing to be safe and to function in the society in which one lives; and something left over to enjoy. Provision, protection and pleasure. Those are the basic human needs.

But, however one defines "enough," the question remains--Why do some not have it? Why are some people "poor?"

A lot of ideas are thrown around to explain poverty, including lack of education, lack of opportunity, bad luck, laziness, greed, discrimination, exploitation, social unrest, karma, fate, God’s will, etc. All these reasons may play a part, and many do.

But, however "poor" is defined, the economic explanation for it is always the same: The poor are poor because they do not produce enough to either meet their own needs or to trade for the things they need. In other words, poverty is a production problem. 

So it seems that any effort to address poverty, except those done in the very short term, should in some way address this production problem. This isn’t anything new or ground-shaking. However, those of us who feel that helping the poor should be part of our life’s calling seem to lose sight of it.

There is no good reason why any society cannot come to be productive, or why we should expect any society to be destined to be poor forever. Obviously, if someone is starving, correcting his long-term lack of production is not his most pressing need. At the same time, programs which simply address short-term needs and are not complemented with efforts to improve the productivity of those aided should expect no long-term improvement in the problem. In other words, poverty will continue to be a problem as long as the poor do not, somehow, learn to produce enough for themselves. This, of course, assumes a social order where production is even possible. But, eventually, without production, a society is doomed to poverty and dependency, or worse.

This is not to diminish short-term efforts to help the poor, whether secular or spiritual. Immediate needs must be met, and genuine charity enlarges us all. Further, personal attention to the poor can help them in ways money transfers cannot. An aid worker who cares for the health and feeding of a Third World person may be saving the future leader who turns his village around. A missionary who implants values, faith and confidence in those in her care is affecting the future in ways the biggest check written may not accomplish.

But addressing the long-term poverty problem, though it may begin with placing food in mouths, must continue on to place thoughts in minds. A person or society that is not sufficiently productive will always be dependent on others or will never have enough--or both.