David Brooks' effort to paint regulation as a "herd" phenomenon -- like the real estate and asset bubbles -- is too cute by half. After all, under that rubric, deregulation was also a herd phenomenon, and thus needs to be corrected (like the real estate and asset bubbles). The framing of his article, in that way, undermines the argument. But there's something to be said for the argument. Brooks gives voice to the traditional conservative caution about regulation: The world is complicated and in rapid flux, law is a blunt object managed by a slow-moving bureaucracy, and when the one meets the other, the consequences can be unpredictable, and often undesirable. Regulations, however, are not the delicate web of gossamer Brooks suggests. There are ways in which this crisis was complicated and new. And then there are ways in which it was the blunt reassertion of old realities. Capital requirements, for one. Whether you're talking Fannie Mae or Bear Stearns, the efforts to dismantle the regulations asserting a high level of constant liquidity were catastrophic. Similarly, the housing bubble was perfectly predictable, and problems in the subprime market were predicted by Federal Reserve appointees and because the Chairman was disposed against regulation, he decided not to regulate them.
