Do We Have a Free Market?

No doubt if you watch much on the news you have seen the “failure” of the free market discussed. But in reality we do not have a free market. Do not misunderstand. Yes, there are areas where the market does not work well, environmental issues for example. But this is not what the pundits are talking about. The crisis was not caused by deregulation—after all, Banking is the most regulated industry we have. I am not saying that Glass-Steagall’s repeal was a good idea, it wasn’t. 

The crisis was caused by a combination of fraud, rigging of the market, government interference, excessive debt, and excessive government spending. It is like the old Harold Brown joke, the government breaks your leg and then expects applause when they give you crutches. 

How rigged is our market? No one really knows, except for those that are doing the rigging. Add in the weird regulations of the market, and you have a mess. 

While I do not want to lose my libertarian creds, it seems to me that plunge protection teams, as they are called, are a good idea. These secret government groups intervene in the market when there is a massive failure of the market—smoothing out the market, often caused by programmed trading. Recently a programming mistake led to a several hundred million dollar loss by one firm. The program was supposed to buy at, for example, 17.24 per share and sell at 17.25, massive micro trading. This is not all bad, as it smooths out the market. Instead the program was selling at 17.24 after buying at 17.25 or higher. Oops. 

This interview is interesting as it explores the rigging of the market that everyone knows is occurring. Is the rigging as large as Chris Powell on Capital Accounts thinks? I do not know. I fear he is right. At some point such rigging fails. We may live to see that failure in 3 to 7 years.