June 3, 2008
Defending Financial Instruments
Don Luskin has a guest editorial in the WSJ today about commodity index funds. In a sane world, I don't think such a vehicle would need a defense. But, this is an election year:
In the political quest to place blame for high food and energy prices, a new scapegoat has been found: commodity index funds. Politicians of both parties, energy company executives and farm lobbying organizations all agree these funds should be regulated or prohibited altogether. Who says this is an age of political discord?
The piece is (unsurprisingly) smart and worth a read in full.
The larger and more frightening point is that few of our 535 economy-commissars comprehend the instruments and activities they seek to regulate. With apologies to Martin Niemöller:
In the 80's, they came for my junk bonds.
Because I held only AAA, I was silent
Then they came for the REITs.
I did not speak up because I was in equities.
Now the Senate wants to ban my securitized mortgage derivatives
And no one is left to speak up for me.
Most people overlook the progress that new financial instruments bring. From the Corporation to the ability to hedge risk. new instruments may not match the transistor but they have allowed us to direct capital to its best uses and get risk to those who can best manage it. If Congress wants to be the equivalent of the middle-ages church in banning "usury" and send all of us back to cash in the mattress, few people will speak up.
UPDATE: Mr. Luskin uses my poem.