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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

February 5, 2013 at 10:08 AM

Is the 787 the Washington Mutual of airliners?

It sounds like a sick libertarian joke: We don’t need independent government regulation of airliners, because if one crashes then customers will make the rational choice and not fly that plane. The free market works!

But this is no joke. The blockbuster story from the Seattle Times’ Kyung M. Song indicates that the Federal Aviation Administration pretty much let Boeing attest that Boeing’s revolutionary 787 Dreamliner was safe. It’s called “self-certification” and sounds like a recipe for disaster.

We’ve been here before. After the “financial services industry” was deregulated, capped by the repeal of Glass-Steagall in 1999, the big banks and Wall Street went on a binge of cooking up exotic hustles in an ideological atmosphere of self-regulation. Not only did the banks themselves “train” regulators about such complex rackets as mortgages bundled in collateralized debt obligation derivatives, but the regulators were encouraged to let the banks regulate themselves. After all, the banks had every “rational” incentive to see that the system worked properly. Unfortunately, the banks’ real incentives were to rake in huge short-term profits and compensation dependent on practices that were neither safe nor sound. This was on display at every big bank, but especially at Washington Mutual, a thrift operating with barely any regulatory oversight.

Complexity equals fragility. And when government regulators are defanged, both dangers rise exponentially. In the case of the big banks, the world financial system was pushed to the edge of collapse. WaMu went down in the biggest banking failure in history. Trillions of dollars from taxpayers and the Federal Reserve were required to prevent a second Great Depression.

Another spectacular failure: Self-regulation in food safety.

Now comes Boeing, which told the FAA that the Dreamliner was safe. And the FAA allowed it to fly — until undeniable trouble forced the grounding. And remember, when this airplane flies again it will go into service with many airlines that have outsourced maintenance to cheap locales around the globe, again mostly unregulated.

Every twist of this story gets worse.

And Don’t Miss: In a hard economy for all ages, older isn’t better — it’s brutal || NY Times

Today’s Econ Haiku:

‘Bad dog’ civil suit

S&P made good money

Being a lap dog

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