There needs to be basic regulations in place for the financial and insurance sectors to ensure adequate reserves to cover obligations, and to prevent speculators from manipulating commodities markets.
As I understand it, Credit Default Swaps and the like are built on debt and leverage, similar to how the banking system practices fractional reserve banking. Neither of those 2 practices would be allowed on a free market because. Fractional reserve banking is nothing less than legal counterfeiting in today’s world and it would seem to me that CDSs fall into the same category.
Call it regulation if you want, but it seems to me like mere prevention of fraud. And if that’s the case, there’s nothing laissez faire about it. A free market implies protection against fraud and crime and protection of property and contracts. I don’t see how anything that breaks with that definition of a free market can be considered laissez faire.
As far as I’m concerned, Greenspan was no libertarian. I mean he was the chairman of the federal reserve which has a monopoly on money and credit.
I might add that just because libertarians favored “deregulation” doesn’t mean that in this instance, “deregulation” was a libertarian philosophy. I think that politics simplifies a complicated issue into “deregulation” and “regulation”. This being a complicated issue, it’s hard to see where “deregulation” leads for most people. No libertarian would be in favor of “deregulating” murder, but that is a clear case. Clearly “deregulation” of murder violates basic free market principles, and no one would call it “deregulation”.