The problem with financial regulation is that it has favored the new and untested over the tried and true

Thanks for putting the focus on 2003-06 instead of blaming the Clinton administration. Good journalism here. Thanks

Why suddenly pick on regulatory system? What actually did go terribly wrong?

How is it that no financial expert has detected any anomaly in the supposedly failure proof system since the subprime crisis surfaced last year? Don't just blame any established system at one's convenience. The whole life style of the West needs scrutiny.

Old wine in new bottle (albeit most expensive newest bottle) is a very old game played by every one, especially those who have political or financial powers. It bounds to fail when overplayed.

Do not expect the new president to resolve the current economic woes amicably and quickly. If the whole army of economic gurus is at a loss on how best to tackle the maddening crisis that is fast deteriorating out of hand, what can the most powerful novice of the financial world do?

Be ready to face the onslaught of the ugly financial calamity with courage and dignity.

The world should be well equipped psychologically and prepared adequately for the imminent catastrophic economic meltdown.
(btt1943@yahoo.com)

"A few financial innovations are useful. We don't want to thwart them entirely. But they should be subjected to more--not less--oversight than stocks and bonds."

There you go! That should be the rubric of every blog that is posted here.

While I agree with you that your last statement is the most important, I think your piece points out many contradictions in our national behavior that will have to be overcome. Overall we have to rethink the idea that regulation is not necessary and can only be done in such a way to cause only harm. Although I am not an economist and make no claim to being an economic expert, I was greatly struck by one case I read in law school antitrust class that involved W Bush when governor of Texas wanting to allow doctors collective bargaining rights against insurance companies. The Republican ideology says government should be small and so this legislation was written so as to permit collective bargaining, but it was struck down because there was no oversight written in to the legislation. Reality requires that for any government initiative, regardless of its intention, to have some kind of corresponding bureaucracy to promulgate guidance and enforcement. We have stopped being able to have any kind of rational discussion about regulation because the idea that regulation is always bad has taken too great a hold on the national stage.

As further evidence of this position, I was watching a local TV broadcast with expert on this crisis. Each and everyone of them said that regulation was bad and that you could not use regulation to get out of this. Then the moderator asked what we should do to start turning the situation around, there was no response from any of the panel. Then the moderator asked what the next administration should do and the one expert spoke up to say that it should enact regulation/legislation to make the books of all these entities more transparent so that we could actually start getting our arms around the scope of this problem. We don't need regulation until you ask the same question multiple ways and then the concession comes that we actually do have to have rules.

So, there is no way in this current environment to get people to agree that new ideas require more regulation because we have completely and totally absorbed the idea that this will inherently prevent innovation, cause our economy to slow down, and result in BIG government. If you write on this subject again, I think intellectual honesty requires that you fully address this current American political reality.

Not to be too big of a pest, but I still do not fully understand why you think Merill/BofA is a good result. To my mind, the only thing this accomplishes is kicking the can down the road. So far, that solution only allows the can to pick up greater velocity and mass that results in far worse conditions at a later time.

I really challenge your assumptions that super banks are more stable because Citi is not stable right now. Further, the only reason that BofA wanted to use depositor funds is because the firm is now going to use that money to try to plug holes in its balance sheet by placing larger bets. This in my opinion can only ultimately result in the new institution becoming the single largest commercial bank failure in the US which the FDIC will not be able to absorb. Perhaps your assumptions and conclusions would be correct in normal circumstances, but these firms are now less regulated and more importantly the are acting out of desperation (or at the very least fear). Thus, this new super bank business model is the type of "financial innovation" in my mind that should be subject to your thesis of much higher regulation, but this is impossible in these times. I would love an explanation from you on how and why you think this won't come to pass, especially if it's good enough to make me agree with you. I asked for this explanation once before, but have not gotten a response.

"Its repeal, argued journalist Robert Kuttner in testimony before Congress last year, enabled "super-banks ... to re-enact the same kinds of structural conflicts of interest that were endemic in the 1920s."

Kuttner ie right. The structural conflicts of interest of super banks may not be apparent in the current crisis, but they were after the bursting of the tech bubble and the Enron fraud. Super banks may have been more stable than investment banks in the current crisis, but that does not invalidate the point Kuttner made last year. He clearly wasn't talking about the current crisis, the full dimensions of which were still not apparent then, but the ones that preceded it (and the reasons for which are now well understood)