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Financial Regulation Is No Magic Bullet
The cries for more regulation in the financial system are never silent. To many, “more regulation” seems a sensible, obvious thing to demand. If something is out-of-hand, restrict it! Unfortunately, things are not this simple. A patching up of the holes won’t be sufficient. What we are faced with today is an opaque financial system, confoundingly complex, and dangerously intertwined.
Many people felt the pain quite personally in 2008 and were enlightened to the unsavory reality that the narrative of the stable, prosperous financial infrastructure had been something of a myth all along.
A slew of regulatory measures have been applied since that fateful year, yet we truly are not any more protected from another such crisis. If anything, we are almost certainly in worse shape. It is quite easy to lament an apparent dearth of regulations and to verbally clamor for more because this seems the most logical, straightforward way to curb so-called excesses and risk in the financial sector. Make no mistake however: An onslaught of regulations will not fix the underlying flaws of the financial system. The regulatory plea is a simplistic antidote.
Here’s an analogy: Everyone knows that if you impose too many rules on a child, they will rebel. They will sense a shadow that is too overbearing and work to outrun it. If you want your child…
