hi all. Ive been thinking about our money system and capitalism for many years. in the 90s, I hung out with a crowd called the "cypherpunks" who were libertarians verging on near-anarchists. they were anti-regulation. it seems that within my lifetime, anti-regulation has finally reached its high-water mark (much in the sense that katrina did in new orleans) somewhere around the banking crash of 2008.

now, I have a strong libertarian side and Im generally in favor of "streamlined regulation". but a long time ago I recognized that the issue has to be more nuanced than pro- or anti-regulation that it tends to get portrayed in various places.

years ago my first "real" girlfriend "B" introduced me to ayn rand. I was skeptical. I liked some of her ideas, but not others. I found her writing to have a lot of one-dimensional characters, and also tended to "demonize" her opponents. she liked to create straw men and then knock them down.

recently I found this amazing info on rand, [1-3] that talks about how she was a major admirer of a twisted, grisly serial killer named Hickman. this was stunning news to me, and I dont think its fully circulated in the mainstream yet. please pass it on. this information is irrefutable, its documented in her private notebooks. the notebooks have been largely uncirculated until recently and that explains why this crucial angle/information has been hidden so long.

rand does not seem to address the issue of hickmans guilt in her notebook. it seems to be a kind of "blind spot" on her part. I found the same to be true of my gf "B".... blind spots galore. she also seemed to be congenitally incapable of apologizing for anything. ah well there are many people who arent sociopaths who have the same problem. in rands case though, it would be an interesting exercise to try to date her comments to prior- or post- conviction of hickman.

as one article below points out, ayn rand is a intellectual inspiration to a lot in the newly forming tea party and the right wing. but, I do have some sympathy for her and dont want to demonize her, because her beliefs seem to quite possibly stem from a kind of PTSD over her highly traumatic childhood.[3]

Ive long lost touch with "B". I think I last talked to her in 2002. I was seriously toying of calling her up and telling her about this info. she would probably be unmoved. then theres also that old expression which may be appropos, "let sleeping dogs lie" hahaha

it occurred to me recently that Rands admiration for a sociopath is quite possibly no accident, that Rand is actually the founder of something that might be called "sociopathic politics". it can be applied to government, banking, health care, or other areas of society. in it, you basically deny the issue of society in formulating your policy. you deny the individuals "debt" or responsibility to society at large. the repercussions are obvious:

• government-- individuals have no responsibility to aid each other through welfare, social security etcetera.. result-- gridlock and dysfunctionality in congress
• banking-- a corporation exists only to make money, it has no responsibility to other corporations, the public, etcetera. result-- massive crash, biggest in a half century
• health care-- government sponsored health care is socialism.. end result-- spiralling health care costs, unaffordable for everyone

* * *

anyway, I have a new theory of regulation that Ive been devising lately. it looks like we may lose out on serious financial regulation this time around after the worst crisis in something like half a century, congress seems to lack the discipline for it and basically, is highly compromised. I am strongly in favor of 3 basic reforms which I think most reasonable people can agree on:

• reinstate the glass-steagall act. this acts as a firewall between low-risk and high-risk banking that has been knocked down and which we are paying dearly for.
• break up the big banks.
• improved financial transparency that allows basic reserve ratios to be openly calculated for all financial enterprises.

here is my new basic, nuanced theory of regulation. capitalism can demonstrably fall down in a particular situation. here is that basic scenario.

suppose I have Seller A and Buyer B and Product C. capitalism focuses on this relationship. now, the key issue is what might be called "transactional transparency", or Quality. by transparency I am referring to, how visible is the Quality?

suppose the Quality of product C can be determined strongly at the time of sale. capitalism works well in this case, because Buyer B can decide how much to pay based on quality, or not buy the product at all.

but suppose Quality of Product C is difficult to determine at sale time. that might sound a little funky, but in fact, arguably, there are many cases where this is true, or perhaps even the majority of cases. simple example-- if I buy a toyota car, I dont know immediately if the brakes will fail in the future, or the accelerator will stick.

another especially obvious case is products with a built in timer like financial derivatives!! we dont know at the time of sale whether they will make us money, or potentially "blow up in our face". products with a high degree of complexity like cars, or computers, or financial instruments all have this issue.

actually, when you think about it, how many products *do* have transparent quality? arguably, not very many. consider even a simple product like a nail-- or similarly, a rivet.

it is in fact the case that some neat new research suggests undetectedly-faulty rivets (with too high quantities of sulfur) may have been involved, or even causative in the failure of the Titanic. a staggering thought. (ie that maybe some of the same "root causes" involved in the Titanic failure led to the failure of our economic system recently).[4]

basically, even the seemingly simplest products can fail or have poor quality under various conditions. and that poor quality can be very difficult to detect at sale time-- eg, what did the passengers of the titanic know about those rivets? and what should they have known?

this basic issue reappears again and again in zillions of not-so-expected contexts. for example, recently the pentagon has reported that counterfeit computer chips are a huge problem and possibly even a significant national security risk.[5-6]

now typically it is not in Seller A's best interest to sell products that he knows are faulty. if he does, his company will eventually collapse because, at the very minimum, customers will "discover the crap" and stop buying it. but unfortunately, that is a slow process. it is not instantaneous.

as greenspan found out recently, he said he had a "flaw in his thinking" in front of all of congress. now I think greenspan is a sniveling scoundrel sometimes (note, greenspan is an acolyte of Rand!!), but at least he had that small )( smidgeon of manhood remaining to admit a personal error in front of congress.

so what is the answer? well in finance we have "rating agencies" that attempt to rate the soundness of financial products. but that again can be subject to manipulation as we found. rating agency R is paid money by product seller A to "rate" the product, and rating agency R gets more money if they give A a good rating, even if they are selling crap.

and, heres another angle. there are entire branches of economics, I am quite aware, that attempt to deny the idea that products may be "opaque", and are based on participants making "rational" decisions on value of product P. or, they might argue that the products are opaque, but that the buyer and seller might have access to some kind of unique information, and/or should have the right to make the transaction anyway.

but these are wildly incorrect in the sense that, arguably, the quality of most products is not transparent, and if the products are *costly* enough, their failure can have massive, dangerous *systemic* implications for our economic system. eg, if the products are entire mortgage pools or corporations (and yes, of course, buying and selling stock is like buying entire corporations as a product.)

it would seem, private enterprise is not capable of solving this problem independently.

that is the role of Government G. now, our basic theory gives us an idea where regulation is more important. and it should focus on the aspect of more regulation where it is more necessary/needed.

• for complex products like cars or financial derivatives that have many interconnected moving parts. in an extreme case, the govt might even simply outlaw products with too much complexity, such as certain kinds of derivatives, because the complexity is just too large for anyone to actually understand.
• for products that quality cannot be determined at sale time. call these "opaque" as the opposite of "transparent". for example, drugs or food fit into this category. you may not know until your dog is dead from several weeks of bad food that china is shipping dog food with poison in it. or, toys with lead paint in them.
• another example. an entire company can be seen as a black box. how much quality is in that black box? the assets and liabilities and the ratio, called leverage or reserve ratio, is the critical parameter that the govt needs to regulate. and that black box may also have "too many moving parts" to be safe, like AIG. was AIG an insurance company? a trading company? a bank? what? this regulatory confusion over basic categories was catastrophic.
• also stuff that is "really large and expensive" like entire corporations, mortgage pools.

now, obviously, the most opaque entities need to be regulated the most, and the regulation needs to focus on several things

• dont even allow entities with too much opacity!! ie certain types of financial derivatives, companies that are trying to be too big or do too many things (bank, insurance, trading, what?)
• try to create regulations that make opaque things more transparent. eg financial reporting by companies. also, be very wary of techniques that companies use to do the opposite, make stuff less transparent, like hiding liabilities, eg as happened with AIG, or Goldman Sachs in the recent Greece debt scandal
• do so all in a way that avoids useless regulations that gum up capitalistic efficiency. such as overregulating some product and useful products within the regulatory framework cost too much or are impractical only because of the regulations.
• the regulatory net is a "net" that must be fine, but not too fine. if it is too fine, it gums up transactions. if it is not fine enough, then there are loopholes that are big enough to drive a mack truck through.... resulting in a big crash.... sound familiar?

its a razor thin balancing act. hard? yes. but, critical? yes. as we have found in the last year and a half or so since the crash of 2008, if we dont get it right, we pay a very,very heavy collective *social* price.

now, it is true as some of the financial CEOs recently testified to congress, that "cycles" (their clever, clinical, whitewashed euphemism for "crashes") are inevitable in finance. you know what? I agree with that.

but the degree and efficacy of our regulation will determine how *harshly* they are experienced. if your regulation is broken, those cycles will be much more severe than they needed to be. again..sound familiar? as yogi berra might say, its like deja vu all over again.

[1]
Ayn Rand, Hugely Popular Author and Inspiration to Right-Wing Leaders, Was a Big Admirer of Serial Killer
Her works are treated as gospel by right-wing powerhouses like Alan Greenspan and Clarence Thomas, but Ayn Rand found early inspiration in 1920's murderer William Hickman.
http://www.alternet.org/books/145819/ayn_rand,_hugely_popular_author_and_inspiration_to_right-wing_leaders,_was_a_big_admirer_of_serial_killer/

[2]
Romancing the Stone-Cold Killer: Ayn Rand and William Hickman
by
Michael Prescott
http://www.michaelprescott.net/hickman.htm

[3]
How Ayn Rand Became an American Icon
The perverse allure of a damaged woman.
http://www.slate.com/id/2233966

[4]
In Weak Rivets, a Possible Key to Titanic’s Doom
http://www.nytimes.com/2008/04/15/science/15titanic.html

[5]
Counterfeit Chips Raise Big Hacking, Terror Threats, Experts Say
http://www.popularmechanics.com/technology/industry/4253628.html

[6]
Dangerous Fakes
How counterfeit, defective computer components from China are getting into U.S. warplanes and ships
http://www.businessweek.com/magazine/content/08_41/b4103034193886.htm