Should Wall Street be tightly regulated or able to operate freely?

Conservative — Moderation key to market survival

Brian Cuaron

Too many times people cling to ideologies simply because it helps to make certain issues easier to understand. The problem is that most issues aren’t that simple, such as those regarding the economy and Wall Street.

For example, Regina Barreca once came out with a book titled “Too Much of a Good Thing is Wonderful.” While I’ve never read the book and have no idea who Barreca is, I know that the title’s assertion is absurd.

For example, healthy food is good, but it turns unhealthy when eaten in excess; although the Internet can create a world community, it can also serve to separate people from their real-life friends; while associating with friends helps create a healthy lifestyle, every now and then people need some time alone.

In other words, moderation and not indulgence is a key trait of soundness. The same is true in regards to Wall Street and federal regulation.

There can be no doubt that the free-market approach to the economy actually works. Time and again this approach has proven itself throughout American and world history; leading to innovation by such men as John D. Rockefeller and his profitable Standard Oil Company, which opened the door for the prosperity of the 1920’s and even helped create six years of uninterrupted economic growth during George W. Bush’s presidency.

The problem is that in each of those cases the non-regulation of the rich led to the hurt of the common man and woman. For instance, Rockefeller was able to get shipping discounts due to his large shipments, while smaller oil companies had to pay full price.

Although the 1920’s was a time of great prosperity, non-regulation of loans led to the bust of 1929 and the Great Depression. Today, we feel the effects of deregulation within the banking community as homeowners are enduring foreclosures because they received loans they couldn’t afford.

“That settle’s it — let’s revolutionize our economy with regulation and Keynesian economic policies,” says the gleeful liberal. Liberals believe that America’s economic downfall may finally open the door to his ideology’s economic policies.

Not so fast, my overeager friend. You forget that the free market has actually worked with great success, even if only in spurts, while also forgetting how over-regulation serves to stifle the economy. Need I bring up Mao’s starving China, the Soviet Union’s crumbled empire and Venezuela’s current economic state to illustrate the latter fact?

The free-market approach works. I say this not out of a sense of moral superiority. It’s true because the free market most aligns itself with the self-centered, totally depraved nature of mankind. However, it is because of that wicked nature that the government must moderately regulate the market and Wall Street, so that the rich aren’t free to be like Bernie Madoff and run alleged Ponzi/pyramid schemes.

Brian Cuaron is a senior English major and the video editor for the Daily Forty-Niner.

Liberal — Some rules crucial to protect free market

Christopher Herrin

In the wake of the financial collapse, the question is not, “Should Wall Street be regulated?” The question should be, “Is non-regulation realistic in an interdependent economy?” The current collapse of the U.S. and world economic systems followed the collapse of the U.S. credit market. Due to this interdependence, we have no choice but to introduce some amount of regulation to insure the long-term health of the system.

Wall Street should be regulated — it just should not be regulated too tightly. The regulations should allow investors a maximum of freedom with rules that provide structure and security. Like anything else in life, there should be boundaries.

The proliferation of credit default swaps is a prime example of the way in which our economy is interconnected. CDSs are insurance policies to reimburse policy holders if a bond in which they have invested fails. CDSs are predicated on the belief that the insurer will not go bankrupt.

The problem was that most Wall Street investment firms held massive amounts of CDSs, which are not regulated by the federal government. As a result, after Bear Stearns became insolvent in late 2008 because investors became alarmed and withdrew their money, it was discovered upon examining their books that Bear Stearns held hundreds of billions of dollars of CDSs from investors around the world.

Letting Bear Stearns collapse would have set off an avalanche that would have taken down many other institutions, each of which would have then taken down other institutions, and so on. This is known as systemic risk. Thus, the decision was made to rescue Bear Stearns.

As the avalanche progressed, Lehman Brothers was later allowed to collapse because there was no more political will in Washington, D.C. for another bailout. It turns out that Lehman was far more interconnected than anyone realized. Banks became afraid to lend to investors so businesses and individuals were unable to get funding. The virus spread to AIG, then to Morgan Stanley and to Goldman Sachs. Everything froze.

Therefore, the Republican notion that any regulation inhibits the system by inhibiting market discipline is just plain nonsense. In fact, it was what got us into this mess. Republicans forget that investor discipline also comes from having to play by certain rules, sacrificing minor amounts of freedom for the system’s long-term stability.

If regulation is too strict, there is a very realistic chance that investors will take their money to foreign markets. But common-sense, balanced regulation would also encourage investment in U.S. markets as investors would feel more secure.

The most important thing is the long-term prosperity and sustainability of the system. As we are now seeing, inadequate regulation can lead to a collapse of the entire system and the worldwide deterioration of prosperity.

Christopher Herrin is a graduate Religious Studies major and a columnist for the Daily Forty-Niner.