You're still making an originalist argument. Who cares what Alexander Hamilton had to say about anything? He's dead.
To steal a quote from the Economist article I linked to above, suppose we fast forward this conversation fifty years. Do we really care what James Madison might have thought about which privately cloned human-animal hybrids could use viral DNA material drawn from public health databanks?
No, of course not. This is a conversation to have amongst the living. How big should the government be? Is a complex question with many stakeholders.
> Having the FDIC encourages commercial banks to be much riskier.
No, it doesn't - because when a commercial bank became an investment bank, that insurance only applied to deposited accounts. If we define the risk holders to be the people with deposits, then sure.
However, most people would define the bank investors to be the ones willing to take risks. The shareholders, accordingly, were not protected by the FDIC and got wiped out when these banks failed or merged into larger banks.
>I think the housing bubble was entirely avoidable had the government taken different action.
Yes, but that's a tautology for a lot of things in the economy.
The financial crash was far too complex for me to try to recount here. There is a wide range of incentives that could have been tweaked; but the bottom line is people took far too many risks across far too many levels of the economy. The end result was not caused by an industry forced into bad decisions due to poor regulation. Investment banks were allowed to borrow too much money relative to their capital holdings, and they were allowed to pour their money into financial instruments that are computationally impossible to accurately judge.
Removing the FDIC and the SEC would exacerbate the problem.
Here's some very accessible reading material, that I think you ought to brush up on:
To steal a quote from the Economist article I linked to above, suppose we fast forward this conversation fifty years. Do we really care what James Madison might have thought about which privately cloned human-animal hybrids could use viral DNA material drawn from public health databanks?
No, of course not. This is a conversation to have amongst the living. How big should the government be? Is a complex question with many stakeholders.
> Having the FDIC encourages commercial banks to be much riskier.
No, it doesn't - because when a commercial bank became an investment bank, that insurance only applied to deposited accounts. If we define the risk holders to be the people with deposits, then sure.
However, most people would define the bank investors to be the ones willing to take risks. The shareholders, accordingly, were not protected by the FDIC and got wiped out when these banks failed or merged into larger banks.
>I think the housing bubble was entirely avoidable had the government taken different action.
Yes, but that's a tautology for a lot of things in the economy.
The financial crash was far too complex for me to try to recount here. There is a wide range of incentives that could have been tweaked; but the bottom line is people took far too many risks across far too many levels of the economy. The end result was not caused by an industry forced into bad decisions due to poor regulation. Investment banks were allowed to borrow too much money relative to their capital holdings, and they were allowed to pour their money into financial instruments that are computationally impossible to accurately judge.
Removing the FDIC and the SEC would exacerbate the problem.
Here's some very accessible reading material, that I think you ought to brush up on:
http://www.npr.org/series/124587240/planet-money-s-toxic-ass... http://www.thisamericanlife.org/radio-archives/episode/355/t... http://en.wikipedia.org/wiki/The_Big_Short