Does this crisis mean we need more, not less, market ? Am I going to get flamed for even suggesting this ?

More and more commentators are starting to point to the weaknesses of the market system and how they contributed to, even caused, the current credit crunch and accompanying crises [quotes needed]. However, two key factors contributing to this crisis (the two key factors, some would say) are not so much market-based but to do with government and planning.

Firstly, central banks' interest rates. Some point to interest rates being too low for too long as a key factor in the inflation of asset prices (which is a problem when economic subjects start loading up on leverage under the assumption that no deflation will ever take place). Central banks, however, are government institutions (they may be independent or a-political but are still integral parts of the political organisation of most nations). Very capable central bankers may have kept interest rates low with the best of intentions, but would it be an idea to replace this system, usually consisting of a number of wise men periodically getting together in a room and setting one or more interest rates central to our economy, by a market-based system ? Why not let institutions that demand money bid for it, thereby setting a much more natural rate of interest ? When demand is high, interest rates would go up, when demand is low, interest rates would go down. Much more details need to be worked out (e.g. how much money would be on offer at each session) but I think a market-based system should at least be considered as a much more efficient way of setting interest rates central to the economy.

Secondly, rating agencies. I am quite surprised that, in the current crisis, rating agencies seem to be getting of scot-free, while they are the ones that 'laundered' many of the financial products that now turn out to be toxic to its buyers. Is it not the fault of credit analysts at rating agencies that subprime mortgages were, incorrectly as it now turns out, converted into some tranches of AAA paper ? Rather than just the programmatic analysis of the kind usually performed by the small number of analysts that compose these companies, would it make sense to also create a market-based system that continuously evaluates these securities ? A sort of 'twitter for CDOs' that shows how positively or negatively a large number of market participants feel about a certain financial instrument. In the current crisis, some people blindly believee in the"AAA" rubberstamping of some instruments by some analysts, and used these ratings as an excuse for not having to understand the instruments themselves. A market-based system could at least provide a second opinion or create more of a discussion where now there is neither.

Of course, no market-based system is perfect. We know markets are subject to over- and under-shooting and we are gradually finding out that even some of the most sophisticated markets are liable to manipulation from time to time (there seems to be a worrying trend for short-sellers to do well off the back of spreading specious rumours these days), but I believe that markets can help in the current crisis where institutions and some regulation failed. And if those markets can be made ever more transparent, for example by clearly attributing opinions and information to the parties that distribute them, this could be a valuable contribution to avoiding similar crises in future.