Roger Lowenstein had a piece this weekend that succinctly explained why American capitalism needs regulation to survive:
This is not to say that Washington is the main culprit. Markets were incredibly foolish. The dubious mortgages that were written, the credit ratings that blessed them and the trust that banks put in them were speculative and stupid. But we know that people do foolish things. Markets almost demand it. If you are Lehman Brothers and you do not borrow, you do not earn as much as your peers; then your stock falls and you get taken over. So you borrow. Only regulation can check this instinct. Investment banks should be subject to limits on leverage; hedge funds need scrutiny; and more. Alan Blinder, the former Fed vice chairman, says the next president and Congress will have to redraw the entire regulatory map, because “it’s been shown to be wanting.” Amen.
Which is why, as many folks are observing today, even if the bailout bill is passed by Wednesday, the next administration is going to have to take a good, long look at how we ensure the smooth functioning of our financial system, and then do something about it.
--Tim Fernholz
