Re-regulation is all the rage. The underlying assumption is that regulators could prevent mishaps, like the credit crisis, better than the free market.
I'm skeptical--ill-designed regulation and political influence, such as with Fannie/Freddie, were partially responsible for the financial melt-down. That's not necessarily the fault of regulators, but it is systemic, according to Ilya Somin's essay on Volokh Conspiracy on why regulation by well-meaning paternalistic bureaucrats often fails:
Regulators Lack Expertise on the Subjective Benefits of Risky Activities.And nothing's different in the Obama Administration (especially the SEC).
Regulators may have greater knowledge than consumers about the health or safety dangers of risky activities. But they lack comparable knowledge of the benefits that consumers derive from those activities. A public health expert probably knows more than I do about the risks of drinking or smoking. But only I know how much enjoyment I derive from having a beer or puffing on a cigarette. This is especially true when we remember that preferences about such things vary widely. . .
Limitations of Regulators’ Analysis of Risk.
Expert regulators are also vulnerable to interest group pressure. The more complex and technical the regulations they administer, the greater will be the opportunities for interest group lobbying and "capture" of the regulatory process, since rationally ignorant voters will have great difficulty in monitoring the experts performance. Ironically, expert regulators will be least likely to function as truly disinterested experts on precisely those issues where expertise is most needed. . .
The Advantages of Relying on Private Sector Experts.
None of this proves that we don’t need experts. To the contrary, there are many decisions where we can benefit from expert advice. However, the private sector offers a wide range of opportunities to avail ourselves of such advice without incurring the risks posed by government coercion.
Read the whole thing.