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Speaking Without Knowing

By Anonymous

An unfortunate consequence of the financial crisis taking center stage in the news is the barrage of commentary and opinion-pieces on the financial crisis from people who know absolutely nothing about financial markets. The offending commentary has come predominantly from the political arena?amateur political commentators (a category that includes political journalists and columnists, despite their claims of expertise) know even less about finance than they do about politics, and that's saying something. I make it a rule not to read any commentary on the financial crisis from a political commentator.

But some people who I do still read (though not specifically for financial commentary) are apparently afflicted by the same "speaking without knowing" syndrome as the political commentators when it comes to the financial crisis.

For example, on more than one occasion Will Wilkinson has confidently asserted: "We don't need more regulation or less. We need better regulation." Really? Wilkinson is a smart guy and I enjoy his philosophical writings, but I'm gonna go out on a limb and say that he doesn't know the first bloody thing about the regulatory structure currently governing the financial markets. It's incredibly complex, and something casual observers simply cannot pick up in a matter of weeks. It takes years for even financial market participants to learn, and most people on the investment side (as opposed to the legal side) still don't really understand a lot of the regulatory requirements. So how in the world does Wilkinson know that "[w]e don't need more regulation or less"?

(Aside: As much as I hate to admit it, one commentator who really does understand financial market regulations is Professor Bainbridge.)

Another example is the Volokh Conspiracy's David Bernstein, whose truly abysmal posts over the past few weeks have been cluttering up one of my favorite blogs (is there a more fair-minded blogger than Orin Kerr?). Commenting on how the Treasury made recapitalization of the 8 biggest U.S. banks with public funds mandatory, Bernstein wrote, "If any of the relevant banks is already well-capitalized, I hope its CEO tells Paulson to take his capital injection and shove it up his you-know-what." If any of the relevant banks isn't well-capitalized, and they accept Paulson's capital injection while another bank rejects the government money, the market will know that the banks that took the government money are weak. Those banks' lenders will then run for the hills, potentially forcing the banks into bankruptcy. Even Bernstein should be able to understand that.

But later, in the comments, Bernstein goes on to demonstrate exactly how little he understands about the financial crisis, writing, "[A]pparently Paulson has decided that the issue is not banks that 'need' the money, but that the feds need to inflate the money supply, and pronto, and the mechanism to do so is by giving money to major banks." Say what? What planet is Bernstein living on? The TARP isn't about recapitalizing the banking sector, but is instead about inflating the money supply? Wow. Bernstein packed a whole lotta Stupid into just two sentences.

Full post as published by Economics of Contempt on October 14, 2008 (boomark / email).