The Free Market is a creation of Government

Americans in general suffer from the dangerous ideological illusion that free markets occur in spite of rather than because of government regulation.

The free market will be efficient only if correct information is readily available to all players in the market. The trouble in the financial markets today is that good information is not available.

From The New York Times...trust in much of the financial system — banks, brokerage houses, ratings agencies, bond insurers, regulators — has been severely damaged by the subprime mortgage crisis...

One of the more disturbing aspects of the current woes, and a reason that this crisis is unfolding in slow motion, is the inability of these sophisticated institutions to assign accurate values to their holdings...Firms have had difficulty computing their losses because the securities central to this mess are complex, even incomprehensible...Investors who bought these securities clearly did not know what they were buying; they relied on credit rating agencies like Moody’s Investors Service, Standard & Poor’s and Fitch Ratings to tell them whether their stakes were risky or not. But the rating agencies were disastrously wrong in their risk assessments and spent late 2007 downgrading securities they had recently rated as solidly AAA....

“The financial markets have become more and more opaque and so we don’t know enough about where the weaknesses are and what the magnitude of those weaknesses may be,” Mr. Kaufman said. “So far the Federal Reserve and other supervisory authorities have done little about removing the opaqueness and setting new ground rules for financial disclosure. And I have not heard a call from Congress for an investigation where it will ask the Federal Reserve, the Securities and Exchange Commission and federal and state banking regulators, ‘What did you miss and why did you miss it?’ ”

Certainly, greater disclosure of the risks in these complex securities and the institutions that hold them is in order. And investors must be confident that the values assigned to these holdings reflect market reality. So far, no one has come up with a plan to correct these market shortcomings.

We cannot say that the market by itself "understood" the need for transparency. It is after all the largest market players that created this mess.

Governments are instituted to protect our "God-given" rights. They are also instituted to create the "free" market.