Friday, June 11, 2010

Financial Reform Will Never Work: Cascading Intervention

Many things in life, although designed with the best intentions by
bright people, come with unintended consequences.

Consider, for instance, childbirth. A woman who gives birth has
choices to make: do I accept medical interventions (drugs, surgery,
etc. ) or let nature take its course? Many of these interventions can
be life-saving procedures for both mother and child. However once the
natural process of labor and birth has been disturbed there is a
significant risk that further intervention will be necessary, which
may in turn create more problems requiring further intervention. This
is known, as the cascading intervention.

Once disturbed, free markets cease to be free and instead become a
mixture. This mixture only increases the risk of future interventions.
 For a long time now our financial system has been on a series of
cascading interventions—each iteration requiring increasing complexity
to resolve the unintended consequences of the last.

Given that past interventions have only lead to increasing complexity,
moral hazard, and an inability to actually "reform" anything I wonder,
other than blind optimism, what makes us believe this time is

There is no doubt in my mind that the actions undertaken by
Governments today towards financial reform will only move us further
away from free markets and ensure further interventions are needed.