2014 March 13 Thursday
Regulatory Capture And Inevitable Financial Bubbles

Back in September 2013 former US Treasury Secretary Hank Paulson said financial bubbles are inevitable because of flawed government policies.

"Itís a certainty. As long as we have markets, as long as we have banks, no matter what the regulatory system is, there will be flawed government policies. Those policies will create bubbles. They will manifest themselves in a financial system no matter how itís structured and how it's regulated. But the key thing is to have the tools and the political will to act forcefully to limit a crisis," he explained.

But what makes the flawed economic policies inevitable? One really big reason: regulatory capture by the industry that each regulator is regulating. It isn't just the regulatory agency that gets captured. Congress and upper reaches of the executive branch become tools of Wall Street. So do some college profs.

I can not offer a solution to this problem (short of making me King of course). I just want to make it clear that the US government does not have sufficient independence to regulate the financial industry.

Share |      By Randall Parker at 2014 March 13 09:39 PM 

Daniel said at March 14, 2014 9:06 PM:

Paulson would know about regulatory capture in a big way. When he was treasury secretary, during the days in which Lehman Brothers and Bear Sterns were going down, he was taking over 20 calls per day from his Wall street cronies.

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