Spitzer on Regulation
To my shock, disgraced former New York Governor Eliot Spitzer has written a very good essay on the problem of regulating financial markets in the New Republic.
He makes the point that there really isn't any need for more laws and regulations to deal with the problems that led to the meltdown in financial markets. The Fed, SEC and other agencies already have all the power they need. This is a conclusion likely to offend liberals and conservatives equally.
Spitzer makes the point that regulatory capture is a big part of why federal agencies looked the other way at actions by financial market players that should have raised red flags. It's a fact documented by left wing historians like Gabriel Kolko and right wing economists like George Stigler that those being regulated by government eventually take over the agencies that regulate them.
Unfortunately, when some market failure becomes too big to ignore, Congress's natural response is not to fix the existing regulatory apparatus so that it works properly, but rather to add new layers of regulation and agencies on top of the existing agencies and regulations. That's what it did with Sarbanes-Oxley in the wake of the Enron collapse and that's what is going to do again to prove that it learned the lessons of our recent financial debacle.