Real Regulators Aren't Magicians, And They Usually Screw Up
from the why-regulations-tend-not-to-work dept
People who support increased regulations do so under the mistaken impression that such regulators do the right thing most of the time and are able to spot fraud and stop fraud. That's quite rare. What happens instead is that such regulators are very fallible, and often co-opted by the very industries they're supposed to be regulating. Real regulators don't work nearly as well as the imaginary perfect regulators we'd all like to see -- and they often give us a false sense of security. It's what makes people think that a scam like Madoff's couldn't happen. The "real regulators" were alerted to Madoff's questionable activity time and time again. The real regulators also stood by and didn't realize the extent of the problem in the mortgage market. It wasn't a lack of regulations that was the problem that resulted in the financial crisis -- it was the fact that people actually thought the regulators who were in place were protecting us from such a mess. Real regulators are a problem. Imaginary, platonic ideal regulators would be great, but they don't exist.
When regulators fail to address a problem ahead of time, when they regulate inefficiently, when they hand their rulemaking organs to the industries they are supposed to oversee, those are all the actions of real regulators. That's what you get with real regulation.
What Burnett meant when she called for a "real" regulator, of course, was "the regulator I can imagine." The regulators people imagine are foresighted, interested only in the public good, they're resistant to lobbying, and they run efficient organizations. But these characteristics are simply imaginary.
Watching discussions like these, you come to realize how legislation and regulation thrive on self-deception and the appeal to ego.
Thousands of people come to Washington and stay because they believe that they can design the ideal regulatory system. They think they know how to write a law or a regulation that works for everyone, that protects consumers, that doesn't pick winners and losers in the marketplace, that doesn't make the glaring errors that we see month in and month out on Sunday morning political shows.
(If only voters didn't elect the wrong guy. If only lobbyists didn't 'corrupt' the system. If only, if only, if only . . . .)
Alas, we're stuck with real regulators. They fail, and when people rely on them, the failures of regulation are magnified.