[joeag]

I agree that civil litigation can be a terrible method of enforcement, however it's like the criticism of democracy being a terrible form of government but better than the alternative.

The problem with "ex ante" regulations governing conduct is you force a lot of wasteful work on a lot of people and companies that becomes a drag on the economy, productivity, whatever you want to call it.

Let's make an analogy that's appropriate for this time of year. Some people cheat on their taxes. Some cheaters get audited and caught, some don't. Since we know that some people cheat on their taxes and an audit will uncover it should we force every tax filer in the US to submit receipts and other documentation for every deduction claimed on their return, at the time of filing?

Can you imagine how much time that would take for filers and the IRS? Can you imagine the outrage on the part of filers?

The Taibbi article sites to a Bloomberg opinion piece that baldly states that people can lie in their pitch and get away with it. However, if you read the legislation (or at least credible legal analysis of it): A) the pre-prospectus presentations can only be made to qualified investors and institutions (meaning you are supposed to be a sophisticated investor, not the general public and will read or pay someone to read the prospectus when it is filed) and B) the actual regulations that will enact the law haven't been written yet.

There definitely will be (and need to be) reasonable regulations to enact this law, I don't argue that at all. I just think the whole tone and content of this article is over the top and biased. I enjoyed reading his evisceration of GS, but I do think it has influenced his writing about anything having to do with the securities markets or finance in general.

[wpietri]

Sure, but you can come up with real analogies that cut the other way. And you don't even have to go to hypotheticals.

Take food. The US has reasonably strong food laws. Nobody in their right mind would suggest that we go for China-style food safety laws (mmm, melamine infant formula and "meat" made from whatever fits in the grinder) and then hope that suits from individual sick people fixes it.

Also, you're ignoring half the costs. I have confidence that I can buy pretty much any food in any store or restaurant in my city with very low odds of getting sick and zero odds of getting poisoned. Complying with food safety regulations may be expensive for the producer, but removes very expensive burdens from consumers.

Moreover, a well-regulated market is more friendly to consumers via increased competition. If our food safety laws were poor, then I'd only buy from producers who had very strong reputations. The risk of trying a new product or a cheaper competitor would be much higher, so innovation would be lower and overall prices would be higher.

I think investment in the US is closely analogous. Well-regulated markets can help all participants, buyers and sellers alike.

Also, Taibbi's skepticism of Wall Street is well earned. The recession we are still working out of was mainly caused by financial shenanigans, but nobody is in jail and regulatory fixes have been minimal. Anthony Mozillo, for example, made north of $600m; his eventual punishment was to have to give back 10% of that. Lesson learned, I'm sure!

The JOBS Act could be entirely innocuous, but "once bitten, twice shy" seems reasonable to me.

[jellicle]

> The problem with "ex ante" regulations governing conduct is you force a lot of wasteful work on a lot of people and companies that becomes a drag on the economy, productivity, whatever you want to call it.

You're asserting this based on religious beliefs; you've read and heard this statement a lot in the popular media, and it's part of the Republican catechism. But it's false. In fact, the truth is quite the opposite - a heavily regulated environment is the BEST for business, the economy, and productivity. The United States is a good place for business precisely because it is heavily regulated. Nobody steals your plant equipment because there are lots of cops and Marines. People pay their end of the contract because there are lots of courts. Banks don't steal your deposits because the bank regulators are strong, well, that one may be inoperative in 2012 but it used to be true.

The closer the United States comes to non-regulated countries like Somalia, the closer its economy will be to Somalia's.

[wpietri]

Excellent point. But I think it's not just dogma that drives this.

There's also tendency toward convenient over-simplification that's common among we nerds. It's a valuable tool; classical mechanics is a lot easier to learn and reason about if you ignore things like air resistance. One of the most important skills for a software developer is willfully ignoring 99% of the complexity to extract the 1% it's worth teaching the computer about.

But it's also dangerous. The simplifying assumptions of economics are things like perfect information, perfect rationality, unlimited mental processing power, unyielding will, and entirely unbiased cognition. That's useful in theory, but misleading in practice. Misleading twice over, because that's how people would like to see themselves. "I don't need regulation! I'm too smart to ever be fooled!"