It struck me and most of my colleagues in the room as odd that, after what America has just recently gone through -- and for the most part is still going through -- that anybody could actually oppose putting regulations on Wall Street. After all, has it not become painfully obvious to everybody that, if left unregulated, Wall Street -- like any other free market -- will invariably crash the economy? That's what greed does. It doesn't stop to notice that it is too big to fail, it just focuses on getting fatter. And then when it fails, all people can say is "oops." As if they didn't know it was coming. But maybe that's the problem: people simply don't know. There's a saying that those who don't know history are doomed to repeat it. After hearing the behind-the-scenes measures that the Republicans have taken against Dodd-Frank, it appears to me that many Americans are in need of a history lesson.
As you can see, folks were losing their damn minds. The market for tulips was out of control, but the Dutch government did nothing to regulate the tulip exchange markets. The private Dutch Florist Guild, the body responsible for trading tulips on the open market, was "self-regulating." Eventually, the inevitable happened. On February 3, 1637, the price for tulips became too high for buyers and traders and, as a result, the tulip market crashed, leaving thousands of Europeans (ranging from the common man to the wealthy land owner) holding worthless tulip contracts. As a response, the Dutch Parliament (the equivalent of our Congress) passed a law which allowed people to get out of their tulip contracts by paying a small fee, but this was too little too late. The economy in the Netherlands and in Europe was damaged for many years to come.
Do any of these market crashing scenarios sound familiar to anyone?
The fact of the matter is, history is replete with scenarios where a market goes unchecked, the greedy masses jump on board, and then the bubble pops leaving everybody screwed:
- 1637 - the Tulip Mania market crash.
- 1720 - the South Sea Company bubble.
- 1769 - the Bengal bubble.
- 1796 - the land speculation bubble in England and the U.S.
- 1797 - the Bank of England crash.
- 1837 - the U.S. Bank financial crisis.
- 1873 - the long depression in England and the U.S.
- 1882 - the French stock market crash.
- 1901 - the U.S. stock market crash.
- 1907 - the U.S. stock market crash.
- 1929 - the "Black Tuesday" U.S. stock market crash which led to the "Great Depression."
- 1973 - the "Bretton Woods" stock market crash in the U.K.
- 1987 - the "Black Monday" stock market crash of the U.S., Europe and Asia.
- 2000 - the "Dot Com" bubble.
- 2008 - the Sub-Prime Mortgaged Backed Securities market crash.
The obviousness of this historical pattern in the free market is beyond denial. The only question is how many more times will we have to see it before people will begin to realize that we actually do need regulations on the free market?
Now before anybody accuses me of being a capitalism-hating communist, let me be clear: I'm not saying that capitalism or the free market are bad things. Bubbles will happen naturally as the price of the next big shiny thing, whatever that happens to be, rises with demand and then falls after the demand is gone. That, in and of itself, is fine. So let me repeat, bubbles will happen. Such is life. What I take issue with, however, is the lack of common sense regulations that prevent the rest of the entire economy from going down the crapper along with everybody who decided to ride the bubble.
During the past several Republican Presidential debates, all of the GOP candidates have taken the position that the free market can do no wrong. This could not be further from reality. At some point we have to be honest with ourselves and admit that the unfettered market will not regulate itself as some conservatives like to claim. History has shown us in unequivocal terms that when it comes to the free market there is one universal truth: the free market WILL ALWAYS need government regulation - the only question is whether we will choose to put that regulation in place before the market has a chance to crash or after the market has already done so.
1. What is your take on free market vs. regulations?
2. Are we doomed to repeat history?
3. Should Dodd-Frank be repealed as the GOP presidential candidates have suggested?
4. What can we learn from this brief history of the free market?