In a nutshell

I spent most of the day at a conference organized by the Legatum Institute, which was a mixed bag. I was, however, impressed to a very high degree by two speakers, both in the first session, Nicole Gelinas and Kevin Hassett.

There is an article by Nicole Gelinas on the subject of her presentation in the City Journal, in which she analyzes several books on the subject of the recent financial crash. She finds it extraordinary how many people who ought to know better have accepted the narrative that it was the untramelled free markets or capitalism or lack of regulation that was at fault.

It would be easy to read the Vegas story as one more piece of evidence that free markets in the financial world failed us over the past two years. How could the markets have been so wrong, so careless, and so wasteful? Even Steve Eisman—one of the four Vegas interlopers, who made a mint from their contrarian stand—sees the financial crisis as evidence of market failure. Eisman was shocked, he told Lewis, that “inside the free market” there hadn’t been any “authority capable of checking its excess.” This has become the casual mainstream narrative arc of the crisis: deregulation took the economy down, and the government had to step in to save us from free markets.

Over the past year, hundreds of authors have published books on the crisis. What becomes clear—often despite the authors’ own intentions—after reading ten of the most significant of these works is that the mainstream narrative is wrong. Over the two decades leading up to 2008, financial markets were anything but free. The nuts-and-bolts government infrastructure that free markets require to thrive—healthy fear of failure, respect for the rule of law, and fair rules for everyone—was crumbling. The crisis books make clear, too, that Washington’s extraordinary rescues of Wall Street have eroded much of what’s left of free-market infrastructure in finance. Worse, Congress’s efforts to reform the industry will do yet more damage. The next time the financial world implodes, it will hurt the economy even more severely.

The rest of the article, which is very well worth reading, tells the sorry tale of government interference, the prevalence of bail-outs, the creation of the "too big to fail" phenomenon and the people who bet on that. What there is very little of in this whole saga is untramelled or even mildly tramelled capitalism. And, as Ms Gelinas points out, present policies and reactions to the crisis make it an absolute certainty that there will be another one not too far down the line.