The obvious answer is that wall street has never been in a state of no regulation; at least, not for a very long time.
When you have a bunch of poorly thought out regulation, much of it designed to exclude competition, that's when things go bad.
The cool thing about the internet is that regardless of what you or the SEC or John Q. Public thinks is a bad idea or improper, people are free to experiment with it anyway. Technology has outpaced the ability of governments to proscribe voluntary interaction.
The counterargument is that regulation hurts small players more than large ones. Citibank can afford an army of compliance officers; most of us can't.
I'm generally pro-regulation, if the details are sensible, but regulatory capture is a real problem, and it is not an unreasonable stance that the cure is sometimes worse than the disease.
That isn't really a counterargument; it's just a factoid. A counterargument would be something along the lines of "Regulation hurts small players more than large ones, and the scarcity of small players has been the biggest problem with Wall Street over the past decade because _____, therefore the problem with Wall Street is too much oversight."
Regulatory capture's a real issue, but it's not a given. For those interested in the topic, I highly recommend Shelia Bair's "Bull By The Horns", which is her account of running the FDIC up to and during the financial crisis. It left me with quite a bit of respect for the FDIC's approach, and for what solid regulation takes.
Why should people on wall street be forbidden from doing whatever investments they want to, insofar as they are contractually allowed? If you don't like how someone is investing, don't invest with them. If you think certain banks are behaving riskilly, don't give them your money. What are some counter-arguments to this? I.e. why is it a) moral and b) desirable to regulate the activity of wall street traders in addition to the laws they are automatically subject to (like anti-fraud laws)?
The argument is actually fairly simple: behaviors that have been known to cause fraudulent or deceptive activity in the past are placed under more scrutiny or outright banned.
For example, it becomes quite easy to hide fraud when a single entity is both an investment bank and a mortgage lender.
In my layman's opinion, a lot of the problem comes from the fact that accounting is not an exact science. For a large company with many revenue, expenditure and investment streams spread over the course of a year, accountants have a lot of leeway to massage the numbers as they see fit. Until the house of cards comes crashing down ala 2008 it can be very hard to pick apart what is actually going on from the outside.
I would imagine most of the laws and regulations are anti-fraud in nature. Outside of that, limiting the risk exposure of banks that carry FDIC insurance, or some other government backing, is in the interest in of all taxpayers. From my laymen's understanding, if you want to start a hedge fund, take some rich people's money, and gamble it all away, nothing is really stopping you. In fact people do it all the time.
And there lies the rub. So the wealthy man can take advantage of start-up investing, but the government in its infinite wisdom, forbids the middle-class man from doing the same under penalty of imprisonment for the person offering the security.
Yes, it is truly a moral imperative that we allow people who can't afford to be ripped off access to the same "investment opportunities" as people who can.
imo its the fact that we're so reliant on 3-4 big banks as opposed to 100 banks. if it were more decentralized, US could afford less regulation and just let companies succeed/fail on their own. can't do that in the current climate
I don't think it would look the way you imagine. There are lots of computer software vendors, but if you wiped out Apple, Microsoft and a few core Linux contributors, you'd pretty much wreck the computer world, even for people who directly use other vendors. The existence of smaller players does not negate the influence of the larger ones.
People come away concluding that, because the problem with Wall Street is not deregulation, despite all the propaganda to the contrary. The problem was selective regulation or deregulation, whatever benefited Wall Street, as well as selective enforcement and interpretation of law. In a nut shell, Wall Street is in control and reconfigures the legal apparatus to their advantage; they don't randomly dismantle it.
I think people like to simplify regulation as either good or bad and fail to consider how biased it can be. Unbiased software rules that can be openly analyzed and force everyone to play fair are good. Selective regulation written by those with money is terrible.
Because there is a tremendous amount of regulation surrounding finance - look at how it is impossible to make a backer liable Kickstarter. You cannot make your own stock market, and you cannot sell ownership in a company through anything but a public stock exchange.
I imagine there is also tremendous regulation surrounding venture capital, but I have never engaged in it much so I'm unaware of the complexities.
Too bad that, by nature of the fact the finance industry inherently has all the money, that money lets them buy the politicians to then use regulation to prevent competition and line their own pockets, while leaving them impervious to persecution when their greed fucks everything up.
I do not see how even the best intentioned regulation can work in finance. It is the proverbial tightening the fist while the actors slip through your fingers - if you try to restrict the flow of money, really big money, like drug money, then all you will find is you suffering for it.
Protip: If you start by saying "I do not see how", the problem may be that you are just not seeing it.
One of the reasons that foreign companies list on US markets is that we have some of the strongest financial regulations in the world.
A simple analogy: San Francisco has a vigorous health department, and food safety scores are posted visibly in every restaurant. Does this reduce the vibrancy of the restaurant scene? No, it enhances it. Because I know when a place is likely safe to eat at, I spend more money in restaurants and I'm more willing to try new places. That increases the effectiveness of the market because newer restaurants compete on a more even footing with established ones.
> Because I know when a place is likely safe to eat at, I spend more money in restaurants and I'm more willing to try new places.
And the inverse of this, is that if a restaurant listed food safety scores irrespective of state mandate, you would visit those restaurants more, and if most people agreed, those restaurants would prosper and those not adopting food safety scores would suffer.
Except in that situation there was no violence of the state to compel the individual restaurants to do something - the market naturally lead to that conclusion. It is not like there is any limit on your ability to learn information about a restaurant - I would say I am surprised that there is not some popular national database of website safety ratings made up of user reviews, but considering I have never searched for such a service - I just go by general user reviews, under the assumption that an unsafe food service locale would get trashed in criticism - I guess it makes sense not to exist.
> That increases the effectiveness of the market because newer restaurants compete on a more even footing with established ones.
Or it would be a competitive advantage if the markets truly benefited from food safety scores for newer restaurants to advertise them where their entrenched competition does no such thing.
That is such an incredibly naive view, it's hard to know what to begin with.
Voluntary food safety postings are useless, because they allow fraudulent posting. Sure, it'll come out pretty soon - but by that time people are ill or dead due to food poisoning, and the person in question is likely long gone.
"The market" doesn't give a shit if actors are fraudulent or working with good intentions, and it has no way to prevent turning an iterated situation into a one-off situation. "The market" has no idea which reviews are genuine. If you'd like to see unregulated reviews in action, look at the direction yelp is turning lately. "The market" does not guarantee that consumers are fully (or even somewhat) informed, a condition that is necessary to a market actually working properly.
> Or it would be a competitive advantage if the markets truly benefited from food safety scores for newer restaurants to advertise them where their entrenched competition does no such thing.
No, it wouldn't, because you'd have no idea if you could trust the reviews. So you'd wait a while. Sooner or later, you have a bunch of restaurants that post reviews. And then new restaurants pop up, also posting their reviews. Do you still know which ones are trustworthy and which ones aren't?
Sure, you could ask your friends. Until you travel. At which point you're at the mercy of complete strangers.
"The market" is not an almighty force for good. It allows efficient exchange of goods. If a cost is externalized - say, the hospital bill of people eating at restaurants - the market does exactly nothing about it. Because the cost is externalized.
That's the whole point of regulations. Not to be a pain in the neck, but to ensure costs are not externalized. The only way to achieve that without enforcement is a society of entirely benevolent actors. That does not exist.
I'm genuinely interested in what you define "the market" to be, and how you define government, and lastly regulation. Avoid circular references if you can help it.
How can you have such disdain for markets when governments are operated by a market of politicians? That sounds like the worst kind of market society has to offer.
That's a fine hypothetical, but a) I know of no city where restaurants voluntarily put together such a system, and b) if each restaurant gets to pick who evaluates it, there's no particular reason for customers to trust the scores.
I also don't buy your view that the magic sparkle ponies of the market will always take care of everything. I think your approach works in theory, with infinitely smart and well informed humans. But given that we're dealing with a bunch of hairless monkeys, I think cognitive limits make it relatively easy for bad actors to push market solutions away from optimum.
It works in that given example. Of course if you invent an arbitrary number it holds no value. But the OP postulates that through force of state having safety criteria restaurants must advertise is a systemic benefit to the food service industry, and if it actually was, then restaurants everywhere would naturally adopt it if it increases consumer participation and revenues.
More than anything I'm trying to indicate that safety ratings are not actually benefiting the restaurants if they are not adopting similar systems elsewhere. And if they had a private rating system it would only mean anything if there was some consortium that posted standards. Consider the ESRB, which is not a state review board but exists to keep states from instituting review boards in the US on video games. They specify their rating criteria in available records and are utilized industry wide because the users of the rating board find it a net benefit.
I'm not going to argue that consumers do not benefit somewhat from food safety ratings, but it is also not purely black and white, because by compelling restaurants to produce them, if they are not a market positive effect (and like I said, the lack of a natural appearance of such a system outside mandate indicates it is most likely not) then the consumer pays for those reviews with a more significant expense on the part of restaurants than the restaurants make as a result of increased traffic, which means they must raise prices systemically to compensate, and you end up paying more.
Except in a sane market, you should be able to pay more if you want to only shop at restaurants that give safety ratings from some public consortium in the first place. But then you have the choice.
The scenario you paint isn't common for a number of reasons, but the primary issue is information asymmetry.
I don't know enough about food preparation and don't have access to the kitchen of a restaurant, so I have no idea how to properly assign it a health rating. The restaurant itself can obviously produce a health rating, but if they are the type of place to skimp on health issues, it isn't that much of a stretch to believe they may lie about health issues. The free market result will then be a mess. Customers who want a healthy restaurant won't know which ones are truly healthy. That makes it a hard to justify paying the premium for a health rating that could just be a lie. The restaurants then have little motivation to actually care about health since they can't prove it to their customers. In the end, you will have a market that is dominated by cheap and low quality goods (check out "the market for lemons" [1]).
The video game system is not an exact equal. The main difference is that there generally isn't information asymmetry in video games. The customer will be able to play the game and by the end of it have all the same information as the creators of the game. That provides accountability. A classic example of both that accountability and information asymmetry was GTA and the whole hot coffee scandal. The developers hid sexually explicit content in the game that was not factored into the rating. Once knowledge of that leaked out, there was a lot of backlash and the rating for the game was eventually changed.
Banking, finance, and Wall Street likely have even more information asymmetry than the food industry, hence the need for an external and trusted source of oversight.
> But the OP postulates that through force of state having safety criteria restaurants must advertise is a systemic benefit to the food service industry, and if it actually was, then restaurants everywhere would naturally adopt it if it increases consumer participation and revenues.
You seem to treat that as an article of faith. In particular, you come across to me as a free-market fundamentalist. The creed seems to be something like: If a market does it, it's good; if a market doesn't do it, then it's definitionally not good. I've learned never to argue with fundamentalists, as they're impossible to convince.
Regulation done by math is infinitely better than the regulation done by easily corruptible talking heads.
HSBC got caught laundering billions of drug cartel and Iranian money. Do you know how many of the bankers went to jail? Zero. They had to pay a tiny fine equal to less than a month of their revenue.
How many bankers or Wall st guys went to jail for the largest freaking financial crisis they had caused?
Regulation in finance just doesn't work. Look at who the regulators are and who is in charge of the regulators. Half of t these folks are from Goldman.
When you have a bunch of poorly thought out regulation, much of it designed to exclude competition, that's when things go bad.
The cool thing about the internet is that regardless of what you or the SEC or John Q. Public thinks is a bad idea or improper, people are free to experiment with it anyway. Technology has outpaced the ability of governments to proscribe voluntary interaction.