Efficient-Blogger Hypothesis

I'm not entirely sure how to begin this. Were I writing for more than four people I might introduce myself and lay out my various interests and intentions with the precious time of my readership. Unfortunately though respectfully, I'm not sure you all truely constitute a "readership," a term that to me implies a certain level of ennobling unfamiliarity between reader and writer. The "readership," for example, probably isn't quite so well-versed in the author's particular brand of poop jokes.
For that reason alone, I'm a bit self-conscious about this whole process: all of you, both individually and together, have plenty of opportunity to listen to and ignore me rant incoherently about the dangers of uninhibited financial markets. To unnecessarily reiterate Dave so that I might reassure myself then, I suppose the advantage of this blog is that a) with a bit of time and thought and spell checking, any bit of ranting might be rendered somewhat less incoherent in presentation if not always in content, and b) any such ranting is (maybe regrettably) entombed forever in the sacred tubes of the internet where it shall forevermore be available to those who seek it. To reference a conversation I was having with Dave yesterday, any one of us, given our respective cocktails of majors and minors, might be more knowledgeable in a particular area relative to everyone else. I don't know anything about Canadian politics, for example, and I know even less about archeology. I have, on the other hand, heard of Ancient Rome--boyo, I could show you an elaborate diagram or two about their aqueduct system--but that's about the extent of it.
I like to think of this then as a kind of Friendopedia; obviously insufficient in scope compared to its namesake, but fine-tuned to the particular set of interests, beliefs and senses of humor specific to our group of friends. It also allows for a higher degree of interaction. So if I want someone to go into greater detail on the topic of a particular post, I can (as soon as I figure out how to leave a comment--anyone else having difficulty with the spam-filter?) just ask.
So there you have it: the lengthy introduction that I said I wouldn't give. Now, on to the topic of my virgin post:
The New York Times Op-Ed page has an unusually lengthy piece by Michael Lewis (a journalist) and David Einhorn (a hedge fund manager) about the need for the tighter financial regulation in America. For the most part, the conclusion is self-evident if you have a soul and brain to rub together, and the technical aspects of any necessary regulation are irrelevant. What I found interesting and may be worthy of comment is their insight that:

“Greed” doesn’t cut it as a satisfying explanation for the current financial crisis. Greed was necessary but insufficient; in any case, we are as likely to eliminate greed from our national character as we are lust and envy.

I remember last September when John McCain, not exactly the high watermark among insightful economic analysts, talked about how the financial crisis represented a breaching of the social contract. In more recent articles, people exuberantly wag their fingers at people like Bernie Madoff who, in some apparent violation of the Wall Street norm, tried to make a bunch of money in a relatively unsavory way. Of course the point that Lewis and Einhorn make in an admittedly less heavy-handed way than I am now is that we should not expect investors on Wall Street to act selflessly. People do not become investors on Wall Street to fulfill the social contract. If you need evidence of this, join a McGill School of Management fraternity. Those major investors on Wall Street do what they do, for better or for worse, to make a lot of money.
This ultimately goes beyond the philosophy of a few individuals; the very logic of Wall Street and financial capitalism is one of short-term gain at whatever cost.

Obviously the greater the market pressure to excel in the short term, the greater the need for pressure from outside the market to consider the longer term. But that’s the problem: there is no longer any serious pressure from outside the market. The tyranny of the short term has extended itself with frightening ease into the entities that were meant to, one way or another, discipline Wall Street, and force it to consider its enlightened self-interest

In what should probably be an unrelated comment, I watched Taxi to the Dark Side yesterday, a documentary about the treatment of enemy combatants captured in Afghanistan and Iraq. The issue is presented in the following way: soldiers in the United States Army and Marine Corps, regardless of the potential nobility of the purpose, are trained to destroy things. When these same soldiers are then asked to assume the role of Afghani prison guard or interrigator, in the absence of sufficiently binding regulation, how can we then be surprised when these soldiers, whose fundamental occupational task it is to kill, end up killing? In response to their claims to have been just following orders, one might be quick to draw the obvious historical parallel. I certainly don't dispute that. But a fair share of the responsibility also lies with those who thought it wise to look the other way or, worse yet, gut the mechanisms of oversight.
To draw this uncomfortable analogy back in on itself, when people like Bernie Madoff go to business school in order learn how to exploit every possible fluctuation and deviation of price and financial indicator and then spend years in an occupational environment biased towards short-run return, in the absence of oversight, it seems an obvious cop-out to bemoan the abandonment of the social contract. The social contract almost by necessity does not exist on Wall Street.
Obviously, the Madoff case is a bit particular. Madoff didn't simply make money in an unscrupulous way, he made it in an illegal way. But again, if the law is not enforced and someone exhibits the gall to ignore it, it is only half-right to blame the criminal. The SEC, which according to the article was, in November 2005, warned by Harry Markopolis that “Madoff Securities is the world’s largest Ponzi Scheme,” is an obvious accomplice to the crime.

The instinct to avoid short-term political heat is part of the problem; anything the S.E.C. does to roil the markets, or reduce the share price of any given company, also roils the careers of the people who run the S.E.C. Thus it seldom penalizes serious corporate and management malfeasance — out of some misguided notion that to do so would cause stock prices to fall, shareholders to suffer and confidence to be undermined. Preserving confidence, even when that confidence is false, has been near the top of the S.E.C.’s agenda.

It's not hard to see why the S.E.C. behaves as it does. If you work for the enforcement division of the S.E.C. you probably know in the back of your mind, and in the front too, that if you maintain good relations with Wall Street you might soon be paid huge sums of money to be employed by it.

Again then, it is probably insufficient to blame the bureaucrats at the S.E.C.. Those who run the Commission were intentionally selected just as the philosophy which they adhere towas intentionally crafted. Whether or not this conclusion that markets ought not be regulated is based on sincere ideological conviction ("participants in the market know the most about its myriad risks and payoffs and therefore are best suited to decide where, when and how much money ought to be invested") or on the more cynical profit motive ("if the S.E.C. prevents me from selling futures on the indexed suffering of Cambodian child laborers, I might not be able to coat my yacht in platinum") is ultimately irrelevant, because either way the belief, manifested as policy, is equally toxic.

So once again then a blog post ends with the all too predictable conclusion: blame the champions of free-market economics.