[parasubvert]

" (now we can't even say "government regulation" and have to euphemistically call it "alternative solutions" as if government involvement is an act of economic deviance?)."

I presume an unregulated market is preferable to regulation at the outset, yes. Government regulation should be done in the face of systemic failures while retaining Pareto efficiency.

Put another way, I think the market can be very effective with well thought out regs. but I don't believe there are better general/default alternatives than to start with a free market and use the empirical evidence to guide policies...

"likely will get the economic equivalent of a slap on the wrist because users simply aren't technical enough to know how big of a problem this is."

I disagree that this is a case of market failure.

This is a case of "you know better than the market" and you want to force a specific outcome through regulation. But I'm not sure that's what people want.

what if people don't really care about their data being exposed all that much? It's a risk they're willing to take to use social networks. The penalty is that people might move off your service if you leak their information (as is likely to some degree with Yahoo). That to me seems to be the evidence here. That's not a market failure, that's a choice.