Regular readers of EclectEcon know that I have a very high regard for Richard Posner (to the extent that I think he deserves the Nobel Prize in Economics). Here, courtesy of Arnold Kling (whose writings I enjoy more and more each day), is Posner's take on The President's Blueprint for Reforming Financial Regulation. It is lengthy but worth reading. Some of the choice sections:
The emphasis the Report places on the folly of private-sector actors—investors, consumers, credit-rating agencies, and above all bankers—ignores the possibility that most of these actors were behaving rationally given the environment of dangerously low interest rates, complacency about asset-price recognition (the bubble that the regulators ignored), and light and lax regulation—an environment created by the government....
[T]he Report is highly critical of the competence of bankers, consumers, and other private persons, but uncritical concerning the capacities of regulators. Regulators’ failure to anticipate and head off the financial crisis is noted in passing but is assumed to be easily eliminated in the future by altering the regulatory structure. Politics, as an impediment to effective regulation, is not mentioned. The Report worries about actions by private persons that can precipitate an economic crisis, but not about actions (or inaction) by regulators. Its concern with market failures is not matched by a concern with regulatory failure. If brilliant bankers screw up, why not not-so-brilliant regulators?...
If, as I believe, the financial collapse is rooted in regulatory mistakes, expanding the responsibilities of the regulatory agency that made the most serious mistakes seems a perverse response.