Streetwise Professor

February 7, 2008

One More Thing Re DOJ

Filed under: Commodities,Derivatives,Economics,Exchanges — The Professor @ 12:28 pm

The DOJ comment refers to “appropriate regulation” of a separate clearing entity, but never specifies just what that “appropriate regulation” would entail. In football, that’s called a punt. It reminds me of the old Steve Martin routine “How to Make a Million Dollars Without Paying Taxes.” First, make a million dollars . . .

The devil is in the details, and “appropriate regulation” doesn’t appear at the wave of a magic wand. Indeed, after the political sausage is ground, all too often we end up with inappropriate regulation. It takes a market structure to beat a market structure, and merely assuming an “appropriate” alternative doesn’t cut it. If DOJ is really serious, it would spell out a model market structure, and how to transition from the current structure to its proposed alternative so that the tradeoffs can be evaluated. Otherwise, we’re just rocking with Nirvana–the Nirvana Fallacy, that is.

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