It's clearly nonsaterical, and based on the studies that show the crash of 2008 was directly attributable to the removal of regulations in the late '90s on.

It's not a statement that some people don't argue with, but it doesn't seem to be a question that without Glass-Stegal removal, the 2008 crisis would have not spread as far as it did.

Bailouts aren't regulation, they're what happens when people are allowed to make messes that they aren't responsible (either through lack of ability or purchased privilege) for cleaning up.

All regulation is ostensibly about the government stepping in and "cleaning up" private behavior that is detrimental to society. Bailouts fit that description too, so they're very similar if not in name.

The government stepped in and decided that it would not let a company fail as "the market decided" it should, but instead it should change that outcome and spend money to keep these failed companies running. This is certainly not a case of the market running itself.

Ignoring the massive regulations on banks and inter dependency between banking and fiscal and economic policy for a minute, you might say "oh but the market did run itself and these banks crashed and it would have been bad for society if that were to happen so the government had to step in". But that's how all regulation is justified.

I think that's where the other comments are coming from anyway. But I'm not sure it's entirely fair, because I think it's not unreasonable to say some amount of regulation makes sense to prevent problems that would require more invasive and costly regulation or intervention later.

In other words, heap big regulation bad not mean little regulation bad.

Why would you? That is hardly a fringe position for someone to take. "Regulate the bankers rather than bailing them out every X years" was probably the majority position around 2010 or so, depending on how you phrase the question.

it's all about the money, no matter the cost, that's why they mostly operate in grey zones/areas, always trying to circumvent the law somehow. "What do you mean we can't dump all the waste into the river? we actually have to dispose it properly and pay for it?"

and I get it they want to increase their profit. Even if a company wanted to dispose it properly he won't be able to offer competitive prices if nobody else does it

Exactly right, and that's why we have regulations. Even in a situation where _nobody_ wants to e.g. dump all their waste in the river, if you're allowed to do it, it's essentially mandatory to do it if you want to compete.

The government didn't force anyone to give AAA ratings to junk financial assets.

Forced no, but that's the issue with complex regulations, they all interact in subtle ways and no one can fully predict the side effects.

One can argue that public agencies created bad incentives with regulations that mandated ratings agencies' assessments, and then shielded various parties from any accountability by bailing them out, thus removing the main feedback loop of the system (ie: you mess up, you fail).

If you swap out "regulations" with "financial instruments" your first comment makes a lot more sense.

One problem is, "you mess up, you fail", is not a sufficiently effective feedback mechanism - at least since the debtors' prisons were closed, but even they were not effective, either. One problem is that, even under this doctrine, the risk to the individual instigator is not commensurate with the totality of the damage done. Another is that the feedback comes too late, and delayed feedback results in instability.

The government does however have hundreds of regulations around bond/debt ratings. This regulatory capture ensures that only a few rating companies can legally provide ratings.

It's interesting to consider whether the ratings do more harm than good at this point. Would a better rating system emerge if we got rid of all the legislation around bond/debt rating?

That's nonsense. You can start a bond rating agency tomorrow. It just won't mean anything because no one will trust it and you won't be in a position to demand access to company internals to inform your ratings. And the SEC won't recognize your ratings (it has recognized additional firms in the past, but it's nontrivial) which means for a lot of regulator purposes your ratings have no effect.

If they got rid of regulations tomorrow, the first barriers to entry would keep you from starting a ratings agency anyway.