Money Markets

The market has been keeping me busy – that’s how I earn my living, and it’s been pretty exciting of late. That’s why my posting has been so light.

Who’d have thought that money market funds would suffer? Megan offers a great explanation of what’s going on. Let me add some emphasis: what we have here (with money markets and with poor AIG) is a liquidity crisis. Others have documented (and I hope to get around to it as well) how this is the result of mark to market rules that were imposed in response to Enron. Ah, the joys of regulation! To save us from another Enron, regulators planted the seeds of our current financial trauma. It seems like cutting off your arm to avoid the dangers of a mosquito bite. Some are claiming our ills are due to too little regulation, but the problem is really bad regulation. Of course, bad regulation is inevitable as long as we’re hiring regulators from the human race. The more you regulate, the better the chances of a royal screw-up that takes down entire industries and economies.

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