Ever heard of regulatory capture? That's where a regulated group attempts to get control over the regulators, so they can then regulate their own industry for their own benefit. It is universal that regulated organizations will attempt this, and usually they succeed.

After a regulated industry undergoes regulatory capture you will see is a steady growth in the amount of regulation, and a simultaneous decrease in how much the regulation prevents that industry from doing what it wants. The regulations are added because they benefit the industry in some way, for instance by creating barriers to entry for potential competitors.

That is what happened in finance. Glass-Steagall really kept companies from doing what they wanted to do, and got dropped. But we got new "regulations" like the optional alternative way of calculating net capital ratios introduced in 2004 that allowed the 5 major broker dealers to double their leverage. The result? More lines of "regulation" that reduced how much actual regulating there was. Oh right, and a few years later a bunch of failed broker dealers. See http://www.nysun.com/business/ex-sec-official-blames-agency-... for verification of that.

Therefore a steadily increasing number of lines of regulation is not evidence that there wasn't major deregulation in the same time period.

Also, "deregulation" is a buzzword intended to frame the debate and make you believe that they are reducing regulation and therefore creating some kind of free market.

Most so-called deregulation could be better termed re-regulation, it's just changing the rules to benefit different parties, not abolishing them.

(Having said that, btilly above uses deregulation in its new derogatory sense, much like the euphamism downsizing had to be replaced with rightsizing once everyone realised it still meant redundancies. Relatedly the depression was named that by people who thought it wouldn't be as bad as a proper recession, now depression means a really bad recession)

How do you propose to solve regulatory capture with more regulations? Or more regulators? Given the obvious failure of regulation, why is the only answer that anyone can conceive of "more regulations"? Like trying to quench a fire by adding more fuel, oxygen, and heat.

And in light of the inability of regulators to enforce the regulations and the plain failure of them to do so, who cares what the regulations actually said anyhow?

I don't have a way to solve it long term. However I believe that it can be worthwhile to have a regulation that temporarily makes things better even if it eventually fails. For example I think that Glass-Steagall was a good thing for a very long time.

Certainly, not all regulation is created equal. Historically speaking, Glass-Steagall was one (actually two technically speaking) of the most effective bills passed in the past hundred years. It was written in the wake of the stock market crash by people who were determined to make sure that such a calamity did not reoccur, attacking a systematic problem with the financial market at its root cause. I contest that the other regulations you refer to tend to be far less significant and effective, likely (though I may have my work cut out for me substantiating this) because the legislation treats symptoms rather than basic issues.

Additionally the Gramm-Leach-Bliley Act of 1999 that removed the last vestiges of Glass-Steagall (the parts that are related to this argument) happened under Clinton. The trend of financial market deregulation started in 1980, due to a shifting tide in economic though in the neoclassical (chicago school) vein and a multi million dollar banking lobby.