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KAZAKHSTAN-ONOMICS….Felix Salmon on our brave new world:

The “shadow banking system” is now so big and so global that for all we know a series of bad decisions by a mid-level technocrat in Kazakhstan could precipitate cataclysm across America and the world.

That’s true, but only if the financial system is fundamentally unbalanced to begin with — and it’s the job of governments and central banks to regulate the financial system to keep that from happening. They don’t regulate in order to produce the results they want, or to prevent people from making money, but to keep the financial system within at least the very broad boundaries of basic stability.

Alternatively, you can let the unfettered market have its way and then clean up the messes afterward. This is pretty orthodox Republican thinking, shared by Hoover in 1930, Reagan and Bush during the S&L crisis, and now Alan Greenspan and George Bush during the housing bubble. This ends up hurting lots of little guys, of course, but the irony is that it ends up hurting lots of big guys too. Frankly, they’d do better — in fact, they do do better — with Democrats running the show. They never really seem to figure that out, though.

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