Recently the New York Times made a point that Understanding Government would like to second:  when you deprecate the role of government for years on end, government stops working, in every sense.  Here’s what the Times said about the roots of the subprime disaster: 

"The damage, now becoming apparent, demands that policy makers take stock of how the economy arrived at this place. The bubbles in housing and mortgages would not have been possible were it not for the progressive deterioration in regulation over the past several decades, culminating for all practical purposes in a regulatory collapse during the Bush years. The antiregulatory ethos, in turn, derived its potency from a pervasive ideology that markets are self-regulating and self-correcting and therefore best handled with incentives and voluntary best practices, rather than rules and boundaries."

As supporters of intelligent regulation, we would add the following:  It’s an insult to the intelligence of both investors and regulators to imply that the financial industry can manage without attention from government.  Investors and bankers, with a few exceptions, don’t want to work in a Wild West atmosphere where no rules apply — their fortunes and their careers depend on relative market stability year on year.  Regulators, for their part, don’t seek to slow down growth or stop anyone from making a tidy fortune — but it does hurt their reputation when, on their watch, the economy stumbles (crumbles?) after years of neglect from their predecessors and the nation’s elected leaders.

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