I heard John McCain blame the CEOs of the failing companies for the current financial mess. He claimed that it had nothing to do with deregulation. Does John McCain blame the millions of people who took on mortgages they would eventually not be able to afford? Was it just a problem of a few bad CEOs and millions of ordinary folk?<\/p>\n
This is further proof that John McCain just does not understand how capitalism works or needs to be regulated. Capitalism rewards taking risk as long as it pays off handsomely.\u00a0 If you are a CEO who does not take excessive risk and your decisions do\u00a0 pay off but not as well as those CEOs who are taking imprudent risks, then you are soon out of a job. So the wise CEOs either learn to adapt to the excessive risk taking strategy or they are weeded out of the CEO market.<\/p>\n
How do you protect a CEO who knows a bad risk when she or he sees it?\u00a0 One way is to put in regulations that do not allow for the excessive risk taking that achieves short term payoffs and long term disaster. Not only does this protect the wiser CEOs, but it also prevents the bubbles from getting to such dimensions that they end up in such big disasters.<\/p>\n
I saw a similar thing happen to mutual fund managers during the .com<\/em> bubble. The managers who knew how to manage risk prudently and stayed away from the .com<\/em> companies soon got fired for not having the stellar results of the fools who were jumping on the bubble.\u00a0 Those of us who stayed with the few remaining managers of value oriented mutual funds felt like fools for getting measily 12% a year returns when others were getting 90%.<\/p>\n In the end we didn’t feel like such fools after all. We got to keep our gains (or most of them) while many .com<\/em> followers lost it all.\u00a0 It’s not so much how high your net worth ever got, but how much of it you got to keep in the long run.<\/p>\n When the economy was booming and the Republicans called for more deregulation and more tax cuts to stimulate the economy even more, we engineering oriented people realized what a horrible mistake this was going to be.\u00a0 We engineers know about the value of what we call negative feedback. In economic terms this means that the government is supposed to be the counter-weight to excesses in the economy.\u00a0 This is just like electronic negative feedback is the control on excessive amplifier gain.\u00a0 Without the negative feedback or worse in the presence of positive feedback, high-gain amplifiers tend to go into wild oscillations. In the economy we are seeing wild oscillation because of the application of positive feedback instead of negative feedback.<\/p>\n We engineers know that you have to start with a high gain amplifier before you can start applying judicious amounts of negative feedback.\u00a0 Similarly we appreciate the economic engine that is the U.S. economy.\u00a0 It is just this appreciation that makes us understand that regulation also has its limits.<\/p>\n It doesn’t matter what discipline you study that gets you to this insight. I believe Barack Obama and his advisers have it.\u00a0 The people who never come to this insight, like John McCain and his adviser Phil Gramm, should never be put in charge.<\/p>\n I only wish voters who never get this insight would understand what they are missing.\u00a0 Of course, it they did understand, then they would have, by definition, had the insight.<\/p>\n Even Donald Rumsfeld knew that there were known unknowns and unknown unknowns.\u00a0 His aphorism may have sounded funny, but I wish the electorate had the humility that this should have given to Donald Rumsfeld. If only he had really taken this to heart.<\/p>\n","protected":false},"excerpt":{"rendered":" I heard John McCain blame the CEOs of the failing companies for the current financial mess. He claimed that it had nothing to do with deregulation. Does John McCain blame the millions of people who took on mortgages they would eventually not be able to afford? Was it just a problem of a few bad […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7],"tags":[],"class_list":{"0":"post-395","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-periodic-posts","7":"czr-hentry"},"_links":{"self":[{"href":"https:\/\/ssgreenberg.name\/PoliticsBlog\/wp-json\/wp\/v2\/posts\/395","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/ssgreenberg.name\/PoliticsBlog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/ssgreenberg.name\/PoliticsBlog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/ssgreenberg.name\/PoliticsBlog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/ssgreenberg.name\/PoliticsBlog\/wp-json\/wp\/v2\/comments?post=395"}],"version-history":[{"count":12,"href":"https:\/\/ssgreenberg.name\/PoliticsBlog\/wp-json\/wp\/v2\/posts\/395\/revisions"}],"predecessor-version":[{"id":399,"href":"https:\/\/ssgreenberg.name\/PoliticsBlog\/wp-json\/wp\/v2\/posts\/395\/revisions\/399"}],"wp:attachment":[{"href":"https:\/\/ssgreenberg.name\/PoliticsBlog\/wp-json\/wp\/v2\/media?parent=395"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/ssgreenberg.name\/PoliticsBlog\/wp-json\/wp\/v2\/categories?post=395"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/ssgreenberg.name\/PoliticsBlog\/wp-json\/wp\/v2\/tags?post=395"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}