(Vice President, Senior CFO Consultant, The Brenner Group, Inc.)
We all need to be very cognizant that we live in a complex world. Some of our political leaders tell us that maximum freedom of markets encourages the best long term outcomes in economic growth. Like a lot of theoretical concepts, free markets are important and for the most part work well. But as our experience with the banking meltdown, free markets can lead to outcomes in the short run that can be quite severe. In my lifetime, there have been several such situations, for example the savings and loan crisis, the dot-com bubble and the current mortgage related crisis. Absence of effective regulation allows froth in markets to be seen as normal, and the breaking of a bubble unanticipated.
One of the worst things a person can do in forecasting anything is to assume that conditions existing today will continue on into the future. A few years ago when home values and building was buoyed by easy mortgage money and a strong economy, we believed that this kind of economy would continue on indefinately. If things are always so good, then banks don't need as much reserve capital on their books, do they??? For larger organizations, reserves must cover the expected and the unexpected; otherwise the organization and larger economy are at risk.
I hope that out of the mess will come regulation that makes sense from people that are not conflicted by lobbying and campaign donations from the major affected industries. We need to look above our own small perceived interests and look to the protection of the larger society. In fact, we should view the free enterprise system as a way that society allows goods and services to be provided rather than some right to free action that in the long run makes no sense.
A final thought is how difficult regulation will be. The amounts of capital that flow world wide through thousands of banks, non bank entities, hedge funds, mutual funds, currency and commodity exchanges and the like leave plenty of holes that can be filled by unethical speculators and the plain arrogent and stupid. We should not assume that one or two bills in Congress or reassignment of responsibilities between agencies will make this go away.