Econ 101

I've become quite supportive of John McCain's candidacy, but I have to say his rhetoric against Wall Street bosses is disappointingly typical of a politician.

"Too many people on Wall Street have been recklessly wagering instead of making the sound investments we expected of them. And when their companies collapse, only the CEO's seem to escape the consequences. While employees, shareholders, and other victims are left with nothing but trouble and debt, the people who helped cause the collapse make off with tens of millions in severance packages. I have spoken out against the excess of corporate executives, and I can assure you that if I am president, we're not going to tolerate that anymore. In my administration, we're going to hold people on Wall Street responsible. "

It is true that the heads of Bear, Lehman, Merrill, AIG, et cetera didn't understand their investments, and/or didn't understand the funding model that provided that liquidity. It's true they were paid handsomely for little more than tracking the market. But it would be no surprise to learn they managed these companies with an eye to their personal interests. This is just human nature, which won't change, and isn't subject to regulation. The answer to the problem doesn't lie in legislated probity, but in the design of systems and institutions that either align interests or guard against them.

Neither McCain nor Obama really understand these markets. I haven't heard any Congressman that does. Our political class simply doesn't understand economics.