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Blogger: Let the Market Do Its Job

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As the idea of U.S. Treasury Secretary Henry Paulson's plan to regulate the financial markets continues to percolate in the minds of observers, more of them are beginning to speak out. Take, for instance, The Motley Fool's Chuck Saletta. In a piece published Tuesday, he says:

Bad regulations passed in a panic during a crisis may be worse than the disease they're trying to cure.... The very concept of a market stability regulator should send shivers up your spine. If there is any lesson to be learned from the current subprime meltdown, it's this: Risk cannot be eliminated, only transferred.

And if the "current subprime meltdown" says anything about the last legislation that was passed in a panic -- Sarbanes-Oxley -- it's that the law failed miserably, Saletta says. After all, the subprime problem resulted from the very "off the balance sheet accounting" that Sarbanes-Oxley was enacted to prevent.

 

What's more, he says, in his opinion the Federal Reserve should carry the blame for a lot of what's happening now in the market. The organization has cut rates in a panic, made the liquidity problem worse by "undercut[ting] the cost of private money," and "killed capitalism by eliminating risk."

 

His solution, however, is simple:

Stop. The. Madness. Let. The. Market. Work. It governs far better than any financial regulator ever can, no matter how pristine its intentions.

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