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>>The question isn't whether or not regulation is lax and whether or not this happened, it's how to fix it.

In my opinion the only way to reliably fix this is to create a group similar to the one that the federal government created to end Al Capone's illegal activities during the Prohibition.

That group was nicknamed "The Untouchables" because they were fearless and incorruptible (by reputation, which is what's important). They were hand-picked by Eliot Ness, who reportedly went through the records of hundreds of Prohibition agents and personally identified a small group of them who were known for their honesty and integrity (as well as special skills, such as car tailing). What's remarkable about this group is that they were not only stubborn as hell but also extremely resilient to Capone's attempts at bribery and intimidation. Ness himself declined a bribe that was equal to his salary but would be paid to him monthly. They had a huge impact on bringing down the kingpin.

It's pretty clear that the regulators in charge of overseeing the financial industry today don't have this type of drive. To them, it's just a job. They are normal men and women who are up against groups of massive political power. As such, they are not in a position to do their jobs effectively. That's why the system is rife with rampant corruption.

Before you say I'm dramatizing, consider the possibility that Enron was just the tip of the iceberg, and under the surface there is ten Enrons that are propping up huge sectors of the economy with lies and deceit. Maybe ignorance is bliss and we should just let it operate like that. But truth has a habit of coming out sooner or later - and the sooner it comes out and everything comes crashing down, the sooner we can rebuild the system.

We'd never stand for something like that today. Today, government is supposed to step out of the way and let the business world take the lead. That's why we've cut back on federal regulatory enforcement in everything from securities to environmental protection since the 1970's. And it has been a bipartisan effort. I mean, just look at how the tech industry reacts to regulatory enforcement when it comes to Uber and AirBnB. Guess what: people in the finance industry feel the exact same way. And the public largely agrees. Our liberals are post-Clinton liberals use the same small government, free-market talking points the conservatives made popular with Reagan. Even when they call for regulation they are supremely sensitive to the idea that its an illegitimate intrusion into private business.

The US Constitution grants us the legal right to pursue happiness, and for some, that was consuming and/or making a living brewing alcohol. Elliot Ness and his goons were a bunch of arrogant asshats who wanted to trample on that.

They go down in the historical category of bad people who get off by forcibly inflicting their immoral, mistaken ideology on others.

Comparing this persent witch hunt to that one is, ironically, very appropriate, I think.

For the record, the US Constitution says absolutely nothing about a legal right to pursue happiness.

Yes. That was a stupid and embarassing mistake on my part. It's the Declaration of Independence. Anyway, doesn't change my point in the slightest.

I'm confused. Al Capone wasn't a freedom fighter that was looking out for your freedoms during the time of an unjust law. He was a gangster that capitalized an opportunity created by poorly thought out government policies. Just because the government created the situation that made him rich, doesn't mean he gets some sort of 'free pass' on being a kingpin that killed people. Do you feel that Al Capone would have just been an honest businessman if only Prohibition didn't exist?

If people inside financial institutions are, as common practice / policy, picking the winners/losers and hiding conflicts of interest, do you think that going after such people is a 'witch hunt?' Do you feel that when regulators meet with the people that they are regulating that they should have a "he looks honest, I'll just trust whatever he says" attitude?

The point about Al Capone is irrelevant. What is relevant is all the honest businessmen that Prohibition violated.

Yes, I think it's a witch hunt. And any system with regulators "embedded" is a sick one. The proper thing to do is let the financial system self-regulate.

Of course at this point, that's like saying the proper thing for the Soviet Union to do when it fell was to suddenly become capitalist. Doing the right thing here would require an (additional and probably worse) period of sickness because we've been doing the unhealthy thing for decades.

'The proper thing to do is let the financial system self-regulate' - What are you kidding me? Just six years ago, a lack of enforced rules - in other words, lax regulation - and a complete lack of regulation of derivatives led to a runaway housing bubble that practically destroyed the entire economy, killed thousands of people (through suicide/inability to afford medical bills) and lost 8.2 million people their homes. You can't let something which has all of our welfares wrapped up in it hinge on the momentary greed of a few people who have every incentive to take short cuts to greater success. If this "creative destruction" is acceptable to you, then I guess we have vastly different views of acceptability.

Markets are great at solving lots of problems but they have blind spots. And one of them is the welfare of the people who are systemically connected, but not directly participating in the market. Human beings are not perfectly rational, and so neither are the markets that they make up. Until humans and markets are perfectly rational, we will need regulation to prevent gratuitous human suffering.

And if like most economic libertarians you're going to come back at with me with the absurd "It was too much regulation, not too little" argument (which I assume you will), we have very little to discuss.

I think that @javert would have a vastly different view if it was his/her welfare that was 'creatively' destroyed... As such, @javert is probably well-removed from needing to deal with such issues, so it's easy for those people to be a statistic.

> The proper thing to do is let the financial system self-regulate.

> Of course at this point, that's like saying the proper thing for the Soviet Union to do when it fell was to suddenly become capitalist. Doing the right thing here would require an (additional and probably worse) period of sickness because we've been doing the unhealthy thing for decades.

Please explain to me exactly how the financial system will self-regulate. Also explain to me how the consequences of "creative destruction" will be borne by the people that are extracting the most value (i.e. "the 1%") from said system instead of the people that are just crushed beneath it?

Do you really want such a strong non-compete agreement to be legal? By preventing people to work in industry they know best for 10 years, you pretty much tell them that they should apply to McDonalds if they ever leave their cushy government job.

What about Google prohibiting all employees to work for any supplier company for ten years? They sure could influence Google buying decisions.

I think your Google example makes sense, but perhaps government regulation is a special case.

I would say it is not Constitutional to restrict their choice of jobs. How about we provide a bounty for turning in wrong-doers? A percentage of the money involved and they wouldn't have to worry about a job after collecting the bounty. And the bounty, of course, would be paid by the offending bank.

http://en.wikipedia.org/wiki/Lanny_A._Breuer

regarding the treatment of those who know enough to regulate wall street, see also: http://en.wikipedia.org/wiki/Harry_Markopolos