Re-Regulation

The most important consequence that I foresee coming from the current financial crisis is the "re-regulation" of the banking industry. As I have written before, although regulation is sometimes good and necessary, less regulation is better than more regulation, all other things being equal.

There is a great danger in my mind that the US will over-regulate the banking industry again. Why? Two reasons:

1) The majority of the problems right now are not due to faulty regulation. They are due to speculation by businesses and irrational behavior by consumers. Should regulations help avoid catastrophes that result from these things? Yes. But, should a lack of regulations be seen as the sole or even primary cause of these problems? Certainly not. If that's what we see when we look at the situation, we are missing the point and failing to learn the most valuable lessons of all, here. The most fundamental cause of the problems going on right now is consumers running up too much debt, especially in real estate. The other major cause is banks making wildly speculative investments. The third, and smaller, though still important, cause is genuine fraud, deception, or uncertainty resulting from unclear, unenforceable, or out-of-date rules and regulations on financial instruments, institutions, and securities.

2) Re-regulating is "popular" right now. It is easy to see the next president succumbing to the cries for regulation. I think, probably, with a Democratic Congress, and being a Republican, McCain is less likely to heed these execratory howls.