One of the things some people are only now becoming aware of—and it’s happening now because of the increased focus on this sector of the financial industry, methinks—is that a nontrivial amount of Wall Street transactions are currently unregulated by federal and/or state law. As a New York Times article suggests, that seems about to change. Problem is, it won’t change in the direction that will help.

This is a complicated mess, and even though I’ve been following it to some degree throughout, I don’t pretend to fully understand it. But in reading through the aforementioned article, In Washington, a Split Over Regulation of Wall Street, it seems prtty clear that those who are advocating more and “better” regulation are missing two key elements of the environment. They are:
1]. Investing is a speculative, and therefore inherently risky, activity.
2]. Individuals are (for the most part) free to choose whether they want to engage in those activities or not.

Regulation cannot eliminate risk. Some regulations can appear to mitigate it, but in so doing they concomitantly limit the choices available. They have the effect of setting a lower bound of safety, meaning that a company may be unwilling to voluntarily adopt stricter criteria (or regs may forbid such a course—remember the ranchers who wanted to voluntarily test their beef for mad cow disease were prohibited from doing so); and they limit the amount of danger a person can choose under protection of contract. If a market was genuinely free, all individuals in it could settle at a level of benefit:risk that’s comfortable.

An old justification for regulation is that it’s hard to know what a company is doing; thus, the government, via licensing, regulation, and enforcement thereof, serves as a watchdog to help protect indivduals who can’t adequately protect themselves. It should be obvious that this paternalistic attitude has moved from “protection” to protectionism of entrenched companies and practices.

Today, with information much more available, and more cheaply and easily disseminated than ever before, this rather lame protection argument is even weaker. In this country and much of the world, it’s pretty easy for even non-computer owners to research a question or issue—even contact the CEO in some cases and get answers directly from the person who ostensibly has them (or can get them). Thus, it seems to me that instead of looking to regulate Wall Street even more, doing away with the regulations and accompanying protectionism would improve the situation.

What do you think? If you’re so inclined, you can vote in the poll I set up—Is now a good time to abolish federal regulation of industries?—and come back here to explain or defend your position in the comments, if you like.