Thank Goodness For Regulation

Why We Regulate ... What did JPMorgan actually do? As far as we can tell, it used the market for derivatives — complex financial instruments — to make a huge bet on the safety of corporate debt, something like the bets that the insurer A.I.G. made on housing debt a few years ago. The key point is not that the bet went bad; it is that institutions playing a key role in the financial system have no business making such bets, least of all when those institutions are backed by taxpayer guarantees. For the moment Mr. Dimon seems chastened, even admitting that maybe the proponents of stronger regulation have a point. It probably won't last; I expect Wall Street to be back to its usual arrogance within weeks if not days. But the truth is that we've just seen an object demonstration of why Wall Street does, in fact, need to be regulated. Thank you, Mr. Dimon. – New York Times

Dominant Social Theme: We need more of "it," please.

Free-Market Analysis: Paul Krugman is out with another weary defense of massive financial regulation. The US Leviathan is in the process of strip-searching seniors and infants at airports for reasons it cannot aggregately define, but Krugman is still a true believer.

Actually, of course, he is not. The New York Times, Krugman and a coterie of additional people and resources are seemingly part of a larger elite effort to first justify and then create global governance.

This idea, in fact, hinges on regulation. Without regulation there is no apparent reason for government, nor the mercantilism that it gives rise to. Regulation – its timeliness and appropriateness – must be defended at all costs. And defend it Krugman does.

Banks are special, because the risks they take are borne, in large part, by taxpayers and the economy as a whole. And what JPMorgan has just demonstrated is that even supposedly smart bankers must be sharply limited in the kinds of risk they're allowed to take on.

Why, exactly, are banks special? Because history tells us that banking is and always has been subject to occasional destructive "panics," which can wreak havoc with the economy as a whole. Current right-wing mythology has it that bad banking is always the result of government intervention, whether from the Federal Reserve or meddling liberals in Congress. In fact, however, Gilded Age America — a land with minimal government and no Fed — was subject to panics roughly once every six years. And some of these panics inflicted major economic losses.

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