Regulatory Failure

ThinkMarkets is very pleased to present the following post by the first of our guest bloggers, Jerry O’Driscoll.  Jerry is a senior fellow at the Cato Institute. He has written on a wide variety of subjects in monetary economics and on Hayek’s economics. He and I are also coauthors of The Economics of Time and Ignorance (Routledge, 1996).  

 

by Jerry O’Driscoll

 

Ludwig Lachmann frequently remarked that people learn from experience, but asked “what do they learn?”  The recent financial crisis illustrates his point.  For many, it has been labeled a failure of free-market capitalism. In reality, it was a systemic failure of regulation.  Indeed, I would argue the very idea of government regulation of industry has been tested and failed.

 

With the exception of health care, financial services is the most highly regulated industry in America (and, generally speaking, in all developed countries).  No segment of the industry escaped regulation.  For commercial banks, there were multiple layers of regulation: the Fed; the Office of the Comptroller of the Currency (part of Treasury); the FDIC; and the SEC.  For state chartered banks, a state banking regulator substituted for the OCC. Continue reading