The Gulf Spill, the Financial Crisis and Government Failure | Gerald P. O'Driscoll Jr. | Cato Institute: Commentary

The Gulf Spill, the Financial Crisis and Government Failure | Gerald P. O'Driscoll Jr. | Cato Institute: Commentary: "Obviously, regulation failed. By all accounts, [the Minerals Management Service (MMS) of the Department of the Interior] operated as a rubber stamp for BP. It is a striking example of regulatory capture: Agencies tasked with protecting the public interest come to identify with the regulated industry and protect its interests against that of the public. The result: Government fails to protect the public. That conclusion is precisely the same for the financial services industry.

Financial services have long been subject to detailed regulation by multiple agencies. In his book on the financial crisis, Jimmy Stewart is Dead, Boston University Professor Laurence Kotlikoff counts over 115 regulatory agencies for financial services. If more hands in the pot helped, financial services would be in fine shape. Few believe such is the case."

"Government response to crises once they occur is slow and inept. All this is not because either Republicans or Democrats are in power, but because big government doesn't work. It can't deliver on its promises. Big government overpromises and underdelivers. In reaching to do more, big government accomplishes less. That is not an ideological statement, but an empirical observation."

"The complexity of rules is self-defeating, because that complexity requires more knowledge than can be acquired. Brazil has a simple rule for directors of failed banks: They are personally liable. That concentrates the mind of directors on reining in risk-taking by management more effectively than would creating a systemic-risk regulator."