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Regulating the regulators

Regulating the regulators

The article, “Regulating the regulators,” written by Dean Baker, is an interesting approach of how the economic crisis has come up and how existing rules, and especially the people who should have used them, failed. He claimed in his controversial article that, for instance, the Fed should have seen the upcoming crisis but still did not react. According to Baker, the existing crisis is a result of the huge housing bubble, and he described the behavior of the investment banks as “sideshows,” which to me is controversial. He blamed the regulators as those who actually caused the problem by not reacting. In fact, new rules in the financial sector would be useless and only cost money for the tax payers.

By commenting on this article, I would first take Adam Smith’s theory of the invisible hand into account and second, the theory of capitalism. Before that, I would like to mention that Mr. Baker missed some important and proven facts in his article. On the one hand, it is true that the regulators failed and that they should have seen the upcoming crisis. Additionally, he is right in saying that the huge housing bubble is the main reason of the existing crisis, but on the other hand, he missed completely the part of the investment bankers. They actually set whole world on fire by inventing those financial instruments and betting on them with money they actually did not have. To me, this whole economic crisis is a great example of the failure of the theory of the invisible hand, because the market was absolutely not able to regulate itself. Even more, it destroyed itself. Additionally, it is ironic that in the country of pure capitalism, the biggest banks are not any more in private hands. Without those bailouts, the system would have completely failed. Therefore, it might be at least questionable if only having a free market without any rules and nearly every property in private hands might work out.

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