Democracy & Technology Blog Who is Going to do Investment Banking Now?
The answer, George Gilder tells me, may be hedge funds.
The disappearance of Lehman Brothers and the transformation of Morgan and Goldman Sachs into heavily regulated commercial banks presents an opportunity for entrepreneurial risk taking by someone else. Such as hedge funds. New technologies make it possible for them to stay in touch with clients and handle trades quickly.
The turmoil in the markets world-wide disagregates the economy and makes new entitites possible. Dispossessed “animal spirits” will surely find a new home.
It is worth pausing here to recall that Fannie Mae and Freddy Mac helped over several decades to get home ownership up to 70 percent in this country. Very good, up to a point. They were distinguished by one advantage, government guaranteed money, and one vice, greed (or, if you prefer, self-serving ideological pride). Financial organizations looked at this situation and saw opportunities to build huge new leveraged edificies on top of it. They and Fannie and Freddy went overboard.
The “mark to market” regulation, meanwhile (for all you who love regulations) quite possibly has made the current situation seem worse than it needsto be. No one really knows what the price of a house is if it isn’t selling, so the mark to market exercise is conducted with far too little knowledge. Now we see through a glass darkly.
Overall, is this not a political problem as much as an economic one? Is not the risk of posturing members of Congress now at least as big a scare factor as the housing market and financial markets?