Arnold Kling

Worse than Enron?

Arnold Kling, Great Questions of Economics
Previous Entry Next Entry

In her profile of Brock Lindsey, Virginia Postrel says,

The Asian model of state-directed industrial policy depended on insulating investment decisions from normal considerations of profit and loss. Hence the importance of banks, as opposed to public capital markets. Banks are less transparent and easier to control.

There are those who complain about the fact that the United States stock market made Enron possible. However, Postrel and Lindsey imply that the bank-dependent financial systems in Asia and elsewhere are much worse than our public capital markets. So far, financial coverups in the United States appear to be limited to a few companies. In other countries, where banks are dominant, virtually the entire financial system has been swallowed up by bad investments that managers refused to acknowledge.

Return to top