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Will Regulation Work When We Stop Wanting It?

Paul Krugman's take on the White House's financial regulation proposal is quite good, and quite clear. I'd only add that the proposal seems pretty reliant on regulator discretion. That makes perfect sense right now: The job of financial sector regulator is suddenly akin to joining the Justice League, or maybe the G.I. Joes. You're containing the maniacs who could destroy the world economy.

But that will, eventually, end. The question with this package is not if it's well-suited to a world where regulators want to regulate. It's if it's well-suited to a world in which they don't. A world in which growth is quick and greed looks good. A world in which Wall Street seems to be helping Main Street buy, if not houses, then a surprising number of wind turbines. One of the lessons of the past few years is that regulation has to be impartial and disinterested because regulators, and even Fed chairman, get swept up in the cultural manias behind asset bubbles as surely as traders do.

By Ezra Klein  |  June 19, 2009; 10:17 AM ET
Categories:  Financial Regulation , Solutions  
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Comments

Come to think of it, the sign of a good regulatory regime is its inconspicuousness and its ability to get accepted without question by all affected parties. Nobody regards speed limits as arbitrary harassment of people who drive too fast (which should be legal), everyone regards them as fair rules that benefit society as a whole. That is the standard regulations should strive for.

Posted by: wovenstrap | June 19, 2009 11:30 AM | Report abuse

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