"The misguided notion that financial markets can regulate themselves"

"Government is not the solution to our problems; government is the problem." Ronald Reagan

Ronald Reagan was right. He just said those words twenty seven years too soon. He was wrong about the meaning of those words, however. He meant that government regulation was a bad thing. How wrong can you be? Thanks to him, government is not providing solutions, and it is the problem because it is not doing any oversight at all. So we are left with the financial mess we now find ourselves in because there’s no one left to mind the store, except the thieves.

I have a newfound respect for Reagan. He was able to look into the future and see the absolute mess of the government that is the Bush Administration.

From Seven Deadly Sins of Deregulation -- and Three Necessary Reforms by Robert Kuttner:

The current carnage on Wall Street, with dire spillover effects on Main Street, is the result of a failed ideology -- the idea that financial markets could regulate themselves. Serial deregulation fed on itself. Deliberate repeal of regulations became entangled with failure to carry out laws still on the books. Corruption mingled with simple incompetence. And though the ideology was largely Republican, it was abetted by Wall Street Democrats.

Why regulate? As we have seen ever since the sub-prime market blew up in the summer of 2007, government cannot stand by when a financial crash threatens to turn into a general depression -- even a government like the Bush administration that fervently believes in free markets. But if government must act to contain wider damage when large banks fail, then it is obliged to act to prevent damage from occurring in the first place. Otherwise, the result is what economists term "moral hazard"-- an invitation to take excessive risks.

Read the rest here.