I've probably been watching too much CNBC, but I keep hearing people talk about limiting risk taking, prohibiting "naked shorts" etc., etc.
Without even getting into the issues of central banking, I thought I'd document a really simple proposition: one of the beautiful functions of a free market is that it is the best way to limit excessive risk taking: excessive risk, by definition, means that you've gone too far with your risk taking. The free market handles this quite simply: those that take on excessive risk will quickly lose their shirt, and having no more money can cause no more trouble. The market systematically weeds these people out and informs them, not so kindly, that they need to be in a different line of business. This leaves the market in the hands of the more sensible actors. A bit of an obvious point, but in never hurts to keep saying these things...as the folks at CNBC are proving, they obviously haven't heard this argument enough!
No comments:
Post a Comment