Wednesday’s Washington Post featured a column by Steven Pearlstein that sums up the ongoing debate over the regulation of the financial industry, or at least it attempts to do so. As we all know, the collapse of the financial industry played a major role in what has now become a worldwide recession. The obvious response of many regulators has been to blame the free-market, denouncing the greed of Wall Street and its lack of concern for fellow Americans.
So there are now two options for the financial industry: willingly accept new regulations or fight them. The latter option is frowned upon by party in power, and they have used the “free-market failure” whip time and again to push dissenters towards top-down regulation. The former option then must be only reasonable outcome. As Pearlstein concludes, “once the bill reaches the Senate floor, Republicans will face the difficult political choice of either embracing financial re-regulation and handing the president a victory or defending industry practices that even Wall Street is now unwilling to defend.”
But is that really the choice before Congress? It could be argued, and rightfully so, that the current crisis is not the result of an unregulated free-market, but rather the conclusion of a market regulated from multiple dimensions in inconsistent ways all geared towards cheap credit for high risk debtors. Now that the party is over, to use the oft-tossed around analogy, it’s time to blame the partiers rather than the host. Those who disapprove of more regulation are branded as sellouts to Wall Street, rather than understood as people who wonder how government can regulate an entire financial industry when it cannot even balance its own books. (Anyone who believes you can start a trillion dollar healthcare plan and not raise the deficit should not be trusted to balance your checkbook, let alone the entire infrastructure of the financial sector.)
Perhaps the argument is not so clear cut between those who approve of financial disaster and those who want to see more financial regulation. Maybe the argument is better defined as a disagreement between those who want to see more regulation of the financial and those who fear that further encroachment into the free-market may have even worse effects than we have already seen (of which I am the latter). Or we could continue to be uncharitable.