Let 'Em Fail

Congress is about to propose new regulations for hedge funds. German Chancellor Angela Merkel has the same bad idea, meanwhile the British Financial Service Authority, currently worrying about excessive debt issued to finance acquisitions by private-equity firms, may be next in line. But whatever the perceived problem, more regulation is not the answer. It is far better to change some incentives for excessive risk-taking. The old saying is true: Capitalism without failure is like religion without sin. The answer to excessive risk-taking is "let 'em fail."

History has taught us that not only do regulations not rein in excessive risk-taking, but they often do more harm than good. More than 50 years passed before Congress and the regulators repealed mistaken legislation such as the Glass-Steagall Act that prohibited banks from doing business across state lines, or Regulation Q that restricted interest payments on bank deposits. The damage done by the most recent big blunder--Sarbanes-Oxley--has proved no less difficult to remove. More...

Wall Street wants a free ride. They want to gamble with their money, win huge gains, but expect government to protect them from losses and all on the backs of the ordinary working stiff.