Hacker News Reader

Comment by lmm | Hacker News Reader

That's a little disengenous when we talk about banks, which are creatures of governmental regulation from top to bottom. How much of this capital is "needed" solely because of regulatory requirements?

(Of course governments are quite right to impose requirements on those organizations they're providing backstop funding for. But you can't talk about a "free market" in one aspect of banking in isolation; it isn't and can't be a free market unless you change myriad other aspects of how the banking system works)

View on HN

I'm not sure I buy that. Regulation on "how to run your business" is somewhat different from "where to run your business" and "how much to charge for your business", or for that matter "here's some free money to help you keep profits higher than they would be otherwise".

There is plenty of regulation in computer monitor design and construction by way of FCC requirements, emissions standards, and e-waste recycling rules. Would you argue that the computer monitor market is not free as a result?

Without regulation on fractional-reserve banking, you would have a serious principal-agent problem that, if anything, would make the market for banking less free if left uncontrolled. I see no analogous argument for the government using taxpayer money to buffer major banks' operating expenses.

> There is plenty of regulation in computer monitor design and construction by way of FCC requirements, emissions standards, and e-waste recycling rules. Would you argue that the computer monitor market is not free as a result?

The computer monitor market is notoriously unfree for various reasons, but I suspect that's an accidentally bad example and will assume we were talking about something else.

I'd say it's a matter of degree. A simple, objective regulation doesn't interfere with a free market; a government directly instructing a business to make particular decisions distorts it greatly. Banking isn't quite at the latter level but it comes close.

> Without regulation on fractional-reserve banking, you would have a serious principal-agent problem that, if anything, would make the market for banking less free if left uncontrolled. The risk of economic collapse is an enormous externality. I see no analogous argument for the government using taxpayer money to buffer major banks' operating expenses.

It's never as simple as that. Obviously the government should not be handing bags of cash to banks or any other businesses. But we generally regard doing regulation as something the government should bear its own costs for rather than passing on to the regulatee.

> But we generally regard doing regulation as something the government should bear its own costs for rather than passing on to the regulatee.

How so? If the government regulates that you shouldn't dispose your chemical waste into the river because that's bad for everybody, then it's still your problem to figure out what to do with that chemical waste, after all, it's your waste and not theirs.

The government has no responsibility for bearing any costs which result from you merely following the rule of law.

> How so? If the government regulates that you shouldn't dispose your chemical waste into the river because that's bad for everybody, then it's still your problem to figure out what to do with that chemical waste, after all, it's your waste and not theirs.

It's your problem to figure out how to dispose it safely, sure. But if they want to e.g. audit where the waste is going, that would be widely seen as something the government should do/pay for themselves. And that's how it is with a lot of banking regulation: complying isn't the expensive part, measuring and demonstrating that you're complying is.

> But if they want to e.g. audit where the waste is going, that would be widely seen as something the government should do/pay for themselves.

The government has a reason for wanting to audit that waste because it's dangerous and if it's not properly stored in can cause untold damage to whole generations.

If we could trust private interests to do the same, we would, for the longest time that's exactly what we did.

But experience has shown that private interests usually outweigh public interests. Meaning: If we let people just do whatever they want, they tend to do quite a bit of public damage in the pursuit of their private profits, that's why we started to regulate.

So, if your business involves handling dangerous substances you better make sure you have the facilities and capabilities to properly dispose of them, the government will, rightfully, hold you accountable to that because if they don't then no one else will.

Let's also keep in mind that it's usually the public, aka the government, who has to pay the clean-up costs when some big private venture turned out to be quite destructive, they are usually the ones left holding the bill while all the private profits already went outside the country.

This is simply inaccurate.

As just one obvious example: the cost of environmental assessments are borne by developers, which is all about measuring compliance.

Similarly, common accounting regulations, which require both specific practices as well as specific records retention rules, to support audit activities, also impose costs on businesses.

Heck, at the more individual level, if I want to put a building on a piece of land, bylaws state I'm responsible for producing site plans, construction details, etc, to allow the municipality to assess and approve the work to ensure I'm complying with zoning requirements, and I also bear the cost of safety inspections and so forth during and after construction to ensure I'm complying with the building code.

Government doesn't regulate banks so much as banks regulate government.

Reply on news.ycombinator.com