Regulation – which is based on force and fear – undermines the moral base of business dealings. It becomes cheaper to bribe a building inspector than to meet his standards of construction. Protection of the consumer by regulation is thus illusory.
What we have found over the years in the marketplace is that derivatives have been an extraordinarily useful vehicle to transfer risk from those who shouldn’t be taking it to those who are willing to and are capable of doing so.
This decade is strewn with examples of bright people who thought they built a better mousetrap that could consistently extract abnormal returns from the financial markets.
At the risk of some oversimplification, if the skill composition of our work force meshed fully with the needs of our increasingly complex capital-stock, wage-skill differentials would be stable.
