The Best Regulator is the Market

Over at The Daily
Beast, Reason
columnist and Mercatus Center
economist Veronique de Rugy looks at recent revelations of
regulatory capture on Wall Street. A bank examiner from the New
York Fed, Carmen Segarra, started asking questions at Goldman Sachs
and quickly discovered what readers of public-choice economics have
known for years: Regulators routinely serve the interests of the
firms they’re supposed to control in the name of the public
interest.
Writes de Rugy,

It is fair to ask what the point of a complex and burdensome
regulatory system is if the rules are so easily ignored by the
companies they are supposed to constrain. Isn’t the main reason
behind these rules that taxpayers’ money is on the line—since the
government has granted an implicit promise to bail out big
companies in distress? But if the rules aren’t doing their job, and
the implicit bailout is encouraging firms to be reckless, aren’t
taxpayers left doubly exposed? If we can’t control these financial
institutions either way, it seems that the best regulation is the
discipline imposed by the market. Companies that act badly should
go under. This is how you get rid of bad actors, warn the future
bad ones that there will be no bailout, and save us from the drama
of finding out what a joke this pretense of oversight really
is.

Whole thing here.