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Frank Schnittger:
But if framing the problem as a market failure results in Governments thinking that all they have to do is to "restore the proper functioning of the markets" - through better regulation - then framing the problem as a failure of proper regulation doesn't result in any better solution.
But that's not what they're doing. "Restoring the proper funcitoning of the markets" to them means pouring money into failed institutions so that when they sell the bad assets at market prices they can remain solvent.

The market isn't clearing because the bans are insolvent. The "market failure" point of view is that the banks are insolvent because the market isn't clearing at the "right" price. So to repair the "market failure" they artificially prop up asset prices.

In so many words, you have chosen the wrong frame for your diary. It is not "market" failure and your solution is not a "market" solution.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith

by Migeru (migeru at eurotrib dot com) on Mon Mar 23rd, 2009 at 04:33:48 AM EST
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