When you cross the street at a traffic light, do you look at the color of the light and immediately propel yourself into the intersection? Or do you take a few seconds to glance from left to right to make sure that there isn't a vehicle careening toward you?
My guess is that you double check the government when it comes to your personal safety. So why should anyone believe automatically that just because the SEC exists, any investment bank will be a safe bet and act in precisely the way it ought to?
Any firm is prone to conflicts of interest, fraud, deception, lack of transparency, etc. Investment banks are no different.
It's a reality of life that sometimes people/groups will try to defraud/deceive others. Self-interest (being symmetric) offers a backstop against this, UNLESS regulation gets in the way.
The analogy I'd use is this? SEC regulations on iBanks were as effective as a paper seatbelt. In other words, not effective at all. What did the SEC spend last year doing while the financial meltdown was brewing? It shut down prosper.com!
You may think that it's optimal to declare that everyone should put on a paper seatbelt and that when things get bad just do a bailout, but libertarians would prefer to let people make decisions based on facts the whole time.
Are you arguing that no seatbelt is better than a paper seatbelt?
Just because the seatbelt is broken, doesn't mean we should abandon seatbelts. It means we should work harder to make better seatbelts.
An argument I see when libertarians are faced with such questions is that libertarians aren't 'against' seatbelts, but they want to explore the alternatives. And yet they don't seem to come up with any other alternatives...
I'm arguing that a paper seatbelt is a deception. Metaphorically, if you know a car doesn't have a seatbelt you'll drive more cautiously, or possibly have a seatbelt installed that you know works. In other words, you'll use your cognitive faculties to assess the risk and then manage that risk.
What we should not do is idealize the paper seatbelt or pretend that it works when it does not, or pretend that the design of that paper seatbelt hasn't been heavily influenced by corporate lobbyists, corrupt politicians, etc.
My guess is that you double check the government when it comes to your personal safety. So why should anyone believe automatically that just because the SEC exists, any investment bank will be a safe bet and act in precisely the way it ought to?
Any firm is prone to conflicts of interest, fraud, deception, lack of transparency, etc. Investment banks are no different.
It's a reality of life that sometimes people/groups will try to defraud/deceive others. Self-interest (being symmetric) offers a backstop against this, UNLESS regulation gets in the way.
The analogy I'd use is this? SEC regulations on iBanks were as effective as a paper seatbelt. In other words, not effective at all. What did the SEC spend last year doing while the financial meltdown was brewing? It shut down prosper.com!
You may think that it's optimal to declare that everyone should put on a paper seatbelt and that when things get bad just do a bailout, but libertarians would prefer to let people make decisions based on facts the whole time.