"A False Sense of Security"

John Stossel's latest piece examines how government regulation provides a false sense of security - a level which, Stossel argues, is worse than no sense of security at all.

The $50-billion investment scam allegedly pulled off by Wall Street insider Bernard Madoff has ignited predictable calls for more regulation....

"This scandal underscores the need for a 21st century regulatory approach," writes Arthur Levitt Jr., former chairman of the Securities and Exchange Commission (SEC), in The Wall Street Journal.

Notice the disconnect. Regulation failed, so we need more regulation. I see it differently. Regulation failed, so let's try free markets. That would be a change....

Most people won't like the suggestion that we dump regulation for free markets. We can't let markets run themselves, they'll say. Someone has to protect the unsuspecting from conmen. The Madoff case shows why this view is wrong. We've always been told that regulation of financial markets protects the least knowledgeable investors. Sophisticated people know what they are doing and can fend for themselves...

People who work in government are like anyone else. There will always be a percentage of individuals who can be tempted by corrupt opportunities. The logic of regulation would require that super bureaucrats be appointed to watch over the regulatory agencies.

But who will watch over them?

This is why regulation is counterproductive and a poor substitute for investor vigilance. The more rigorous the regulatory effort appears, the more risky it is.

Regulation by market discipline is better, but in our state-dominated culture few people realize this.

Read the rest here.

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