Monday, March 08, 2010

Regulating business practice of banks

The US Congress debated the charges and practices of banks relating to credit cards and mortgages. The lofty chamber decided that the banks were acting in a predatory manner (i.e. cheating on the consumers) and decided to pass regulations to forbid some of these practices and to ensure fair treatment of consumers. In the land of free market, the legislators decided that they have to go into the nitty gritty of bank practices, instead of letting the free market sort out these problems.

Lesson - free markets ideas can go too far and result in unfair, predatory practices.
Posted by at

2 comments:

Anonymous said...

To the banking regulators.

Free market does not mean that you stop using your brains.

March 08, 2010 1:41 PM
Ex-Con said...

Free market concept can be efficient only if there are conditions to allow (and enforce) free competition e.g. high level of information flow, low barriers to entry, equal bargaining powers among market participants, access to wide variety of substitution goods and services, etc.

In real world this is not possible, hence we need an impartial 3rd-party to act as referee to ensure balanced and fair play. At a country level, the referee is the govt and its agencies and ministries.

Unfortunately, our govt is not that impartial due to vested interests and conflicts of interest. E.g. Ownerships of GLCs that suffocate large segments of our economy, major shareholdings in corporations and MNCs, salaries and bonuses that are pegged directly and indirectly to GDP and topline economic performance.

Hence you need to learn to protect yourself and be skeptical of govt initiatives.

March 08, 2010 3:19 PM

Post a Comment

Subscribe to: Post Comments (Atom)

Blog Archive