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Sad account of how toothless SEC enforcement against bank fraud really is: In SEC Fraud Cases, Banks Make and Break Promises Again and Again

Conservatives complain about too much regulation; liberals say there isn't enough. I think the truth is that there's too much, done badly. A lot less, done well, might be the right answer. I've been thinking a lot lately about how internet companies do what is the equivalent of regulation - Google and Bing have to fight web spam, ISPs have to filter email spam and viruses, Paypal and credit cards have to detect and deal with credit card fraud. This is a kind of "algorithmic regulation," where there's a desired outcome and a variety of tools deployed to achieve it. They aren't always as effective as we wish they were, but you don't have this sense of utterly useless bureaucratic handslaps while the behavior continues.

Here's the opening of the NYT article about toothless SEC regulation:

"When Citigroup agreed last month to pay $285 million to settle civil charges that it had defrauded customers during the housing bubble, the Securities and Exchange Commission wrested a typical pledge from the company: Citigroup would never violate one of the main antifraud provisions of the nation’s securities laws.

Senator Carl Levin, left, a Michigan Democrat, said the S.E.C.’s method of settling fraud cases, is “a symbol of weak enforcement." Robert Khuzami, the S.E.C.’s enforcement director, said never-do-it again promises were a deterrent, especially when there were repeated problems.

To an outsider, the vow may seem unusual. Citigroup, after all, was merely promising not to do something that the law already forbids. But that is the way the commission usually does business. It also was not the first time the firm was making that promise.

Citigroup’s main brokerage subsidiary, its predecessors or its parent company agreed not to violate the very same antifraud statute in July 2010. And in May 2006. Also as far as back as March 2005 and April 2000.

Citigroup has a lot of company in this regard on Wall Street. According to a New York Times analysis, nearly all of the biggest financial companies — Goldman Sachs, Morgan Stanley, JP Morgan Chase and Bank of America among them — have settled fraud cases by promising that they would never again violate an antifraud law, only to have the S.E.C. conclude they did it again a few years later."
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69 comments
 
Sad account of how ruthless financial people break the rules and can get away with it ;-)
 
If they keep this up my fallback job will switch from preacher to banker.
 
What there isn't enough of is punishment of these people, IMHO. The government spends a lot of time going after medical marijuana providers, but I haven't seen many perp walks on Wall Street since the hit on Elliot Spitzer.
 
There is certainly little point in having these regulations if the agencies charged with enforcing them are understaffed, overworked, and their personnel easily lured over to the companies they're supposed to be policing.
 
I heard this somewhere before. The SEC roars like a mouse and bites like a flea.
 
Like the article says, these companies have enough money to tie these things up in courts forever. The SEC doesn't have the funds to combat that, so they settle for something instead of nothing.

And people wonder why the OWS protests are going on...
 
+Tim O'Reilly "A lot less, done well, might be the right answer."

Nice dream. Won't happen. The problem is that the incentives on the regulators are perverse. They don't get rewarded for regulation that is as efficient as possible, they get rewarded for issuing regulations and increasing their power to intervene whether or not it's a good idea.

Actually, it's worse than that. They actually get rewarded for onerous misregulation, because that increases the incentive for the banks to spend money on regulatory capture. (Which translates into, for example, cushy jobs for ex-regulators.)
 
On one front the virtues of small businesses, as economic drivers are extolled at every turn (via rhetoric) while in reality everything is skewed towards big companies. This is a serious problem. It's exactly how we've arrived at "too big" to fail in an market driven economy with very weak enforcement of regulations :-(
 
How much of this is our fault? We are debt indentured servants to big banks.. why? To support mindless, cynical, careless consumerism.. we gotta get real about our situation.
 
I've always felt that the answer is not to get government out of business as much as it is get government into business in the most efficient way. There are advances in business theory/logic in the past several years that have resulted in a more efficient business model - and yet our government continually wastes money on ineffective regulation. It's gotten to the point where people want government out of things simply because they know it will just waste money. We need fundamental changes in the way regulation is created and enforced. We need smarter people in charge who have experience in business, not just because "they know somebody". We need to stop practicing government as we have been for 20-40 years. This is 2011....last time I checked.
 
If I robbed a bank and stole 100k do you think if I got caught I could only give back 10k as a fine and no jail time? That's the Wall Street way. Just saying.
 
The bill of rights is an addition document to the Constitution, negotiated between powerful land owners.. the Constitution also had slaves as three-fifths of one person.. also negotiated to the greedy rich.. this has been a problem from the jump,no? Business has always "bought" government in this country. Thing is.. paradoxically.. that the same documents contain the flexibility to fix this.. hard to do, admittedly, but possible.
 
In other words, private and government sectors have always been intricately linked here, but they must be balanced in power to be most beneficial to us, imo..
 
When there is no enforcement and unlimited $$ in bailout, it hardly matters how many or few regulations there are.
 
"you de-regulated some things just for de-regulations' sake"

This is not true. There has not been a year in the last thirty that the volume of U.S. banking regulations decreased. The widespread belief that we de-regulated ourselves into trouble is a myth.
 
Andrew, and Tony... examine the "state's" role in giving land to the Robber Barons in the nineteenth and twentieth centuries.. Land and money grants to the rich have always been tainted by corruption.. always.. just calling the state "socialist" is another greedmedia PR spin to divert our attention from the real theviery here.
 
Money is the ultimate power.. who says? Money.
 
+Eric Raymond I don't know of any place where one can actually view the amount of banking regulations, so it is hard to test that claim. however, a number of key regulations were lifted which did contribute to the problems.

For example: leverage ratios for banks were allowed to expand significantly in the early part of the last decade. Banks were allowed to loan so much money relative to their assets they became highly vulnerable to even a fairly small correction in the housing market.

Insurers like AIG were allowed to sell policies against losses on bundled sub-prime funds. This was not unusual in itself, except that they were allowed to sell those policies both to parties to the funds and to third parties who had no share in the investments. This meant that when the funds went under, AIG was on the hook for massive sums they couldn't pay.

Lack of oversight allowed these things to develop. In addition, AIG had such a huge position in the global economy, had it been allowed to go under, the entire economy would have ground to a halt. Planes would have been grounded, and so on. Proper oversight would have avoided these situations.
 
Good point, David S.. I reiterate..balance of power is important.
 
Maybe we can make a law that says we should enforce the laws we already have?
 
Don't be silly, of course we deregulated ourselves into trouble. Said trouble was, by the way, predicted as the deregulation was happening.

By the way, the amount of paper used to describe a law or regulation is worthless as a metric of how tough or restricting it is.
 
+Scott Draves Enforcement of existing laws also needs to happen, but in cases like the ones I cited above, existing laws were changed to loosen restrictions on behavior of players in the market and those need to be tightened. Also, many of the assets that were involved in the crash were new types that didn't exist when a lot of existing regulations were devised. New laws need to be made to cover these.
 
David, I totally agree, just making a joke to make a point that all the laws in the world won't help if they are not enforced, as this SEC story demonstrates. Bring back Glass-Steagall for example.
 
+David Scheiner Actually, it's not difficult to compile statistics on the volume of banking regulation; by law, all regulation has to be published in the Federal Register, so there's a single source from which to do pagecounts.

Various conservative watchdog groups do this sort of counting routinely for their interest areas. While I don't necessarily trust their agenda in other respects, these pagecounts are well-defined (by, for example, the identity of the issuing agency) and easily checked. We can be reasonably sure they aren't fudged by the absence of left-liberal screaming about bogus numbers.
 
I don't think the SEC has the 'balls' to actually prosecute the fraud they investigate.
I think they make deals - deals they know will not be kept - deals that 'placate' the general public - deals that will one day again cost people their homes/jobs/livelyhood.
 
+Tony Willenberg If AIG had not been bailed out, most of the planes in the world would not have been able to fly.

Not having huge entities is a nice idea, but we have a global economy and entities with global reach are bound to develop. Breaking them up is a nice idea, until you start to think about how to accomplish that.

The problem is not that the big players were bailed out, it is that they were the only ones who were bailed out. They are all back on their feet and many corporations and businesses are sitting on large amounts of cash because consumers are too far in debt and too out of work and the rest to buy anything.
 
The system is too corrupt. All these protests will accomplish nothing unless they turn violent. The only way things will change in Washington/Wall Street is military intervention. If there were an enlightened general who would temporarily take over and arrest all these criminals, then re-institute a real democracy...but that's never going to happen.
 
+Neaz Noor Tell that to MLK, or Ghandi. If you resort to violence, you lose any legitimacy you may have had. Case in point, look at the police...their violence has actually added to #occupy's strength and caused people to take notice.

Being violent is easy. Resisting in the face of violence shows strength.
 
You're all missing a fundamental aspect of the problem. The informational complexity of the financial system has exceeded the capacity of regulators to reason about it.

"Wise regulation", in the sense good-government liberals intend, is therefore fundamentally impossible. This remains true is even if you ignore the public-choice issues and the fact that regulators operate under perverse incentives.
 
+Eric Raymond That is an untested proposition. Give the SEC an increased budget from higher exchange fees, and see if they can do their job.
 
Thank you. A sensible statement made in a genuinely non-partisan way.
 
+Eric Raymond - I think the complexity is by design. I look at the legal profession the same way: Lay people can never understand the law, and need legal professionals to maneuver the system when they get caught up in it. The financial system is looking to be the same way.
 
I would be careful to use PayPal as an example of successful fraud monitoring / detecting. The horror stories of their actions are far too many.
 
I think they should treat these cases like criminal cases with jail time for repeat offenders. If your company has been charged with fraud before, then you do it again, you should go to jail. How does it work for repeat offenders in the US when they're just "little people"? Several states have 3 strikes laws that can land someone in prison for a very long time for having 3 drug charges. Why not do that for fraud?
 
+Eric Raymond Exactly, and I think this is why smaller developed countries, such as Australia, Japan and the countries of Western Europe, have, on the whole, tolerated heavy-handed government better than the US is - simply because they're smaller and, therefore, less complex. The people who actually set public policy aren't as far removed from their constituents as they are here. American presidents, legislators and unelected czars might as well be gods on Olympus from the perspective of people who can't afford to spread around high-six-figure policy purchases, er, political contributions, no matter how many handshakes they give out or photo ops they indulge in.
 
It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.
Henry Ford (1863 - 1949)
 
+Alex Gray the SEC's regulations are not nearly as complex as you think they are. Certainly not as complex as the exchanges' regulations, nor the broker dealer's regs.
 
This completely violates the fairness of justice, jails are full of minor drug offenders that are not allowed to "promise they wont do it again" over and over, but defraud millions of dollars and you get a pass.

No wonder #OWS sprung up!
 
+Christian Flowers +Udo Schuermann

The British did not leave India because of Gandhi. They left India because they took such a beating in WWII that they simply could not sustain their presence in most of their colonies any longer. It's much easier to rule through indirect manipulation.

Historically, revolutions and resistance movements tend to be violent, not because the people are "incompetent", but because it is the only language that criminals and dictators understand. And what America needs right now is nothing short of a revolution.

The civil rights movement in America is, in my opinion, one of the few exceptions. But even in that case, it's still much easier to be a white person in America than a black person.
 
+Alex Gray Whoaa. Now there is a generalization. Western European countries are full participants in the global economy just like everyone else. No developed country is 'less complex' than any other. In fact, I defy you to find an institution anywhere in the United States that is as complex, for good and/or ill, as the European Union.

Much of Western Europe is more regulated than the US for all kinds of very deep cultural reasons some of which have to do with recent memories of having been annihilated in a war. That kind of experience sometimes makes people a bit more risk averse.

As for the complexity of the global economy, +Eric Raymond and I will find ourselves in rare agreement on that. The old style liberalism is as dead as the new style neo-liberalism will soon be. The only difference is that old style liberalism has been dead for 30+ years while neo-liberalism is still fresh enough that the corpse has not yet begun to stink.

Most of the honest people on the left admit that we are as stymied as everyone else as to what comes next. I certainly believe we need to develop better abilities to govern our economy but I'm damned if I know exactly how to make those work r what shape they will take or even what form of government will implement them.
 
I flagged the comment right above this one. It's obviously spam.

Edit added: It's now been removed. The comment above this one is by me and is not spam.
 
I couldn't agree more, Tim. It's not the laws themselves, it's the focus and commitment of enforcement. the trouble is regulatory capture of the enforcing agencies. The story goes that the world of finance is complex and requires finance experts to enforce finance laws. Those experts come from the industries they enforce against and then return to them.... I don't think that story is as accurate as most people think but its the one that drives the context of finance regulation and that's enough to pull any teeth those regulations will ever have.
 
The importance of regulation was shown last time these financial industry tricksters and gamblers lost: They took the whaaambulance to Capitol Hill, who showered them with money instead of doing what they should: Turn away and say "Talk to the hand, make your so-called free market work, not our problem. Since you so desperately dislike our intervention at other times - why not this time too?"
 
As Karl Denninger is fond of pointing out, the issue in many cases seems to be that too many of the laws in question don't have any "or else" clauses - whether for those who break the law or the regulators should they fail to enforce the law. The Federal Reserve Act is a prime example: charged with maintaining "stable prices", there's no "or else" clause to actually ensure that the Fed Board of Governors makes (or reasonably attempts to make) that happen.
 
+Omri Schwarz What on earth? Where did I mention the SEC specifically? I meant each country as an entire system, including all of its various regulatory regimes.

+David Scheiner In your first paragraph you appear to have hallucinated some sort of value judgment into my use of the word "complex". If anything, the implicit value judgment runs the other way - complex systems, as was my whole point, are easier to understand and manage, and I can't imagine how anyone but a career bureaucrat or perhaps a postmodernist academic could imagine that complexity equals quality or effectiveness.

You're onto something in your second paragraph, though, and I would even take it further, into the notion of shared characteristics of temperament and thinking shared between the people of a nation that some people find so terribly offensive. America was, after all, settled and founded by people fleeing abusive authorities, so perhaps a tendency to either subvert or outright ignore the rules is an unfortunate side effect of the self-reliant "frontier" mentality. And really, I would say that's not even necessarily a bad thing until you don't care who you harm, or delude yourself about the effect on others, in the course of bucking or playing the system...
 
Aaaargh, the crippled "mobile" version of G+ gives no option to edit posts. In my response to David Scheier's first paragraph, obviously I meant to say that less complex systems are easier to manage, and if I had an "edit" button I'd just go back and put in the word "less", but G+ thinks little enough of mobile users to deny me that option.
 
So what can we do? Choose different elected officials in our government? Is there anyone who is willing to change the system? Would it have to be almost a complete re-fresh in order to get the change this nation needs. Right? (real question as I have no idea)
 
+Nick Pepito How about letting the incest between Wall Street and Washington run its course while leveraging technology to abandon them both as best we can? We keep talking about changing a system that doesn't need most of the features it currently has. Make new markets! Make them everywhere! Require a huge amount of visibility to participate. Connect those markets to each other. Promote those markets heavily. Get them big enough that Wall Street wants to play. If they want to play, they open their doors to intense visibility. The one system change I think is necessary is to repeal the laws that grant the exclusive currency franchise to the Federal Reserve. Exchanges and markets should have the right to treat whatever they want as currency without fear of punishment or additional tax burdens.
Free markets have a high probability of working if they aren't actually covertly (or overtly CONTROLLED markets masquerading as free markets). I'm not a free market zealot, I can list plenty of cases where inelastic demand and boundaries of rationality make free markets look pretty ugly but for the most part they work great. All free markets have the likelihood of having dysfunctional neighborhoods. Wall Street is a dysfunctional neighborhood. We just refuse to build new neighborhoods and move out! If we move out, we can lay new plumbing and electrical.... we can build based on updated codes....
Let's move out!
 
Doesn't this exemplify a 'crazy' SEC? Or is it 'insane'? Not sure.
 
+Tim Rohde The tech sector has begun some of what you mention, specifically immunizing itself from bankers. Even though there is another tech bubble forming (Groupon anyone???) it is much smaller than the last and will not blow up the whole sector as the last one did. As one part of the global economy after another realizes that these guys are poison, they will -- hopefully -- wither away.

And that is the key to what should guide a new set of regulations to deal with them. Laws and mechanisms to immunize the innocent from their depradations. How we do that I am not sure.
 
+Tim Rohde I do agree that technology can be a "hammer" to build a new future. Guess no quick fix on this one. Took generations to get us into this situation and I'm sure it will take generations to get us out. I believe you are right in the "move out" scenario as far as moving out of our old ways of thinking. To me it is about advancing our civilization... the world is smaller and more inter-connected.

I think along the lines of states combining to create a nation. Nations combine to make our World. Maybe by recognizing that Civilization needs to advance... we can move forward and build a proper foundation for it. A foundation that will support the future vs crumble under the weight.
 
"Robert Khuzami, the S.E.C.’s enforcement director, said never-do-it again promises were a deterrent, especially when there were repeated problems." Please? Do those people listen to themselves? Or are they just drones of their lobbyist/bureaucratic overlords?
 
The real question - what is the real intention or true purpose of any legislation - and not the quantity of that legislation is what should be our deep concern.

We fail for heart and integrity much to often.

Thank you for raising the point, Tim.

www.anancybooks.com
 
+Beresford McLean The intent of the law can be entirely noble.... The enforcement is usually where regulatory capture first rears it's ugly head.
For instance, every merger has to pass muster regarding anti-trust laws that include the potential economic dangers the merger poses. Over the last two decades big banks swallowed huge numbers of smaller banks. The post merger books concealed the big bank's risks with the lesser banks new assets. Tons of people in finance are aware of this. WEAK banks were using their GIANT scale to buy SMALL banks with good balance sheets. They were consolidating their risk to the economy at the same time they were concealing their risk from their share holder. They just got bigger and bigger. Every merger was approved!
Every merger!!! Gosh, these giant banks are concealing their weakness by buying up the other games in town.... No problem, go ahead. If the mortgage crisis didn't catch up with those banks any number of other problem would have eventually anyway! Did we even LOOK? If we did, what was the mindset of the enforcement team? If a few months earlier they were working for a big bank that didn't give a shit what makes anyone think they would suddenly care when they changed hats. If they do care, what does their future look like in the industry. Take action against one of those big banks and you're suddenly very lonely at your enforcement job and looking at NEVER getting a job in industry again....
The system is broken. It can't be fixed but it can be replaced and made less and less relevant. That action is within your power, my power, anybody who has money to invest or a good idea. We don't need Wall Street to aggregate capital for us. They have all that aggregated capital right now because we put our investments there and they have cozy banking ties that give them ready access to cheap debt from the Federal Reserve.
We need to reduce the centrality of the Federal Reserve note in terms of currency. We have the computing and communication tools to use 50 currencies effectively. We need to make Wall Street compete for our investment dollars on a playing field with 1000 times the transparency they currently provide. They will only volunteer to do that if there's more money in it than they are currently making. You can't enforce your way to it because even when the Federal Government gets involved they hire from the same pool so it's effectively self enforcing....
Let them play their game with less and less of the nations money. That's the only signal they will respond to. It's the only signal that has a chance of working and it's the only signal that doesn't require more laws being passed by sock puppets in congress with financial lobbyists' hands moving their mouths.
 
I suppose it depends on who will feel the hit: if it's the banks, they'll put safeguards in place of their own accord and police each other. When consumers or third parties (insurers, public or private) are the ones at risk, we seem to be asked to trust in their inherent goodness, that regulations are an unnecessary burden. But look at the S&L crisis of 30 years ago and the mess now and deregulation, ostensibly to free up creative energies and drive growth but it didn't seem to work out that way.

The best thing we can about/with regulation is remember why they were put in place, so that we can understand the risk of removing them when the idea comes around that the burdens are bad for business.

And somehow in the midst of this, we have an economy that rewards consolidation, trending toward monopoly. Look at any industry — banking, railroads, automakers, telcos — and how many big players are there? From Ma Bell and the 7 baby Bells, how few are left? Hard to see how this benefits consumers or the national economy.
 
The problem is the incestuous nature of economics, where the students go to university and learn from economics professors, who went to universities and learned from economics professors ad infinitum and none of them did a days manual work.

Economics professors teach that economics is about making money, whereas true economics is about resource management. The morality of the people who run our culture is based around the principle of take as much as possible whilst giving as little as possible. The war cry is 'charge what the market will bear.'
 
I think one of the key things that is wrong is that we measure regulations by the amount of them rather than by their effectiveness. Part of what I've been thinking about as models for algorithmic regulation are tools for regulation of physical processes. The carburetor or fuel-injection system in your car regulates the fuel-air mix. There are a set of regulated outcomes (how much your engine can put out in emissions), but we don't think about how much regulation that takes - we just periodically measure the output at the tailpipe, and whether it's in or out of range, and if it's out of range, you don't get a sticker till you fix it.

The problem with so many regulations is that they don't measure outcomes, they measure activities. "You must do this. You mustn't do that." Even when we are measuring outcomes (e.g. with the EPA and toxic emissions), we aren't clear that that's what we're doing, and so everyone does this big game of chicken with the regulators.

There need to be clear and simple rules, and those rules need to change all the time if they aren't achieving the desired outcome.

Probably the closest thing in the government sphere is the way central banks regulate the money supply. They have desired outcomes on a few key indicators, and they tweak things periodically to try to get those outcomes right.

We could do a lot more of this in healthcare, in energy conservation, and so on. But we can't agree on outcomes, or let ourselves be talked out of them, or we make them toothless.
 
+Zach Stein Totally agree. A lot more people should be going to jail - on both the bank and the SEC (and other oversight agency) side. And civil penalties should be high enough to put corporate survival at risk, not just a hand-slap.
 
+Tero Paananen Say more about Paypal horror stories. I have my own complaints about credit cards (though I haven't had bad experiences with Paypal), but regardless, they do a good job of "regulating" the amount of fraud that gets through the system, with a lot of algorithmic detection of boundary conditions. It's a really good model for how government regulation ought to work. Figure out what's not acceptable, use all kinds of inspired data science to monitor what might be going wrong, do quick investigations (just like credit card companies do, because it's their money that's at risk if they don't find fraud - that's an example of an effective government regulation by the way, since the $50 limit on liability to individuals is what forced the banks to invest in fraud detection.)
 
Eric, you are missing a fundamental aspect of the problem in that corruption has bought government for the last two centuries. Businesses are experts at buying loopholes and favors, no matter what the laws and regulations are. We are also involved by NOT being involved, choosing the lazy way out of convenient consumerism, not active citizenry.
 
+Eric Raymond "The repeal of provisions of the Glass–Steagall Act by the Gramm–Leach–Bliley Act in 1999 effectively removed the separation that previously existed between investment banking which issued securities and commercial banks which accepted deposits. The deregulation also removed conflict of interest prohibitions between investment bankers serving as officers of commercial banks. This repeal may have contributed to the severity of the financial crisis of 2007–2011 by allowing banks to become so large, complex, and intertwined that both they and their regulators failed to see the systemic risk that a failure in one part of one bank could lead to cascading failures across the global financial system."

That was a pretty significant act of deregulation.

As for the amount of regulation, it's online: http://www.federalreserve.gov/bankinforeg/reglisting.htm

The complexity of the regs has more to do with the creativity of people trying to get around them than the enthusiasm of regulators. The image of a gimlet-eyed little man churning out page after page of obfuscated prose that serves only to hobble industry is amusing but inaccurate. As we saw in the Gulf of Mexico last year with the notion of "regulatory capture" the regulators might be hard to tell from the those being regulated.

+Tim O'Reilly The problem I see with measuring outcome, rather than regulating process, is that it starts to look like centralized planning. And there's an old saying about the end and the means…

Regulating processes — health and food safety regulations, conflict of interest prohibitions — don't prevent innovation, though they may force people to think a bit harder. But outcomes have to be looked at as well, especially in consumer products. No amount of process-oriented regulation would have improved the design of the Ford Pinto: for that, we have crash tests (which automakers could have decided to do on their own, rather than being forced).

It's really all down to greed and hubris. I don't know that the big banks were just scraping by prior to 1999. They really didn't need to be taken off their leash. And they gamed the politicians, as happens too often. Some promises of a bigger pie (and larger tax receipts) with assurances that there would be no cheating, those old rules were no longer necessary, and that was that.
 
I agree, Tim, that the SEC needs to take a step up to fill in the blanks against crimes such as identity theft.
 
+Tim O'Reilly Maybe the way to improve civil penalties would be to apply a formula as a percent of revenue to penalty calculation?
 
I haven't read the thread at all, but in response to the original post:

Mr. O'Reilly, you are inches away from coming around to the conservative way of thought. The only missing ingredient is a realization that, due to the failings of human nature and the inevitable influence of money on power, regulations can never be done well, not even in theory.
 
"Out of the crooked timber of humanity no straight thing was ever made."

Nothing we make is or can be perfect. If we didn't have greed or abuses of power or flat-out stupidity we wouldn't need any regulations. What's worse? The need or the well-intentioned but ineffective result? CFCs in aerosols, lead paint, the Pinto, credit default swaps, all ideas that someone probably knew was unwise but absent a law, decided must be ok. It's not a liberal or conservative thing or is the Golden Rule the property of one party or the other?
 
You're right. People, in any configuration, tend to screw up. The trick is to find a system of incentives which minimize screwups, and it's clear from experience that regulations aren't it. (Has increased regulatory oversight ever really worked to tame the financial sector? Didn't think so.)

The best thing we have is a combination of the free market, and lawsuits when the free market doesn't work. (And yes, I do think providing a court of law is a valid role for government.)

If you'd like me to link to some more material about the subject, I can. No need to reinvent the wheel by writing about it myself.
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