As a socio-political historian, fully agree with you Peter.

Even as Adam Smith, father of the free-market warned-

Though competition may look after itself, but owing to the human greed involved in such competition it is up to government still to act as watchkeeper.

Sounds like Smith as a philosopher was as earlier with Locke and Voltaire, very much part of the Enlightenment meant to eventually give us a decent democracy.

With Western greed which in many ways has brought on the Islamic hatred causing much of the present terrorism besides our economic problems, maybe it is time we took to checking our history books to find were our present socio-political economic problems really arose from.

The problem with this article is that it starts from a completely false premise: that markets are 'free'. There is not now nor has there ever been a completely unregulated market anywhere in the OECD. The problem in the US is not the lack of regulation but the uncoordinated nature of it. Federal and State jurisdictions overlap; various Federal regulatory regimes both overlap and compete; and there is no consistent set of arrangements that applies nationally.

One can only be thankful for Lindsay Tanner who understands that the answer is not more regulation but regulation that is better targetted to contemporary circumstances. The Prime Minister's COAG initiatives are, in part, directed at overcoming similar, though fortunately lesser, problems in Australia. None of this has anything to do with greed. It is about the proper management of the legitimate regulatory functions of government. As for the 'General Theory of Value', any observer of current Australian regulatory arrangements would say that these four 'criteria' are what regulations already try to do.

bushbred,

Only catch is that Government invention tends to be selective, to reward of peer groups and maitaining the status quo. GM has been building inferior cars and suffers the consquences and then goes cap in hand to the US Congress for a hand. Same of the Banks.

If the GM or Ford go to the brink these companies are more likely to merge than to go into liquidation, or, perhaps, GM could taken over by Toyota. Herein, the free market needs to be allowed to work. We hav suffered fron agrarian socialism for decades (Oz,US, EU and Japan!), now we find, Banks and automotive manufacturers also being given hand-outs. Further, these handouts transnationsals make tax payer handuts to millionaire farmers small in comparison.

What if the payouts don't work, eapecially given those senior executives who created the problems in the first place are mainly still place? More "billions and billions"? (as the Late Carl Sagan might say).

Short-term Government intervention might warranted to R&D support of sunrise industries and buffer new forms of competition and avoid monopolies and oligopolies, but not stop failures from failing.

Senior Victorian “The problem with this article is that it starts from a completely false premise: that markets are 'free'.”

I agree there

Certainly when I look at the volumes of legislation which regulate most transactions, including the promotion and ownership of shares and financial instruments, the idea of an “unregulated market” and the problems of the current economic crisis being a direct consequence of a “lack of regulation” I just fall about laughing (well I guess I just try and find the funny side in everything).

I am still trying to understand how the “sub-prime” market collapse could have ever been initiated by free-market capitalists who live their lives chanting the mantra of return-on-risk?

What I am told actually happened is US Banks were threatened by US government, back when Clinton was on the throne, to support the US financial stimulus package designed to deal with a flagging US economy which allowed people of “less-than-pristine” creditworthiness, access to home loans. These loans being under-written by the US governments pre-existing mortgage institutions, Fannie May and Freddie Mac.

No real “market-capitalist” would take on a risk where the likely hood of default exceeded both the interest rate being charged and the Loan to Value ratio of the security, that is rule No 1 in lending and even the most incompetent banker has it committed to memory.

Only a socialist political mind would conceive of such a loony scheme and only a socialist political mind would put on a show which pretended it could work.

Far from this being an example of the excesses of capitalism, it is in fact the direct consequence of government ignoring the "rules of the market" and discarding its role as “regulator of the market” to become an “operator in the market” and proving, once again that the dual role of regulator:operator produces such a conflict of interest which dooms it to failure

But when it is a government failure it takes far longer to disinter the corpse and the consequences are far greater, affecting everyone rather than just the foolhardy.

Greed is the main problem. Adam Smith thought that once the people had risen to a better standard of living than that which pertained at the time, then they would be satisfied and the economy would level out. He overlooked the fact that greed made people at all levels, dissatisfied with their lot, so the lassez faire economic system which he proposed eventually got out of hand. This, coupled with the uncontrolled increase in population has led to the environmental disaster which today we face with trepidation.

Notwithstanding the above, Bill Clinton's ideas of providing the poor with houses that they could ill afford, has helped to fan the fires of recession/depression which we will also be unable to avoid. Our reliance on China for survival is also misconceived as it is suffering as its bubble bursts. Thirteen years ago, I visited Russia and saw first hand what happens to a country which loses its way because of greed and corruption at the top. Today, we are seeing a similar decline in the US and China and as sure as night follows day, we are going to suffer the same fate.

David

Col,

The other side to protecting, say GM in the US is; protection makes it harder to reward succesful Japanese captalists owning Toyota.

The market should allow the fittest capitalists to survive. If GM et al. does not meet market needs and is uncompetitive, these failed companies must go from he market.

Directors will typically put shareholder needs ahead of employees - entrenchments. Likewise, the market and taxpayer should not prevent the companies being going into liquidation. Actually, it i a bit hypocritial if one thinks about it; it is okay to sack staff but not ostracise a company.