Something that is very clear, is that “de-regulation” is a term empty of explanatory power. All successful six have liberalised financial markets–Australia and New Zealand, for example, were leaders in financial “de-regulation”. If someone starts trying to blame the Global Financial Crisis (GFC) on “de-regulation”, you can stop reading, they have nothing useful to say.
Pointer from Scott Sumner.
The deregulation story amounts to saying that we know that regulation can prevent a crisis, but a crisis occurred, therefore there must have been deregulation. In fact, the risk-based capital rules that I have suggested helped cause the crisis were at the time they were enacted viewed as regulatory tightening, to correct flaws in the regime that existed at the time of the S&L crisis. The deregulation that did take place was intended to reduce bank profits by making the industry more competitive, not to increase profits or risk-taking.
Lorenzo’s post mostly beats a drum that I have been beating, which is that government tends to get worse as scale increases. He writes,
It is generally just harder to stick it to folks (either by what you do or what you don’t do) in a way that doesn’t get noticed in smaller jurisdictions. (Unless jurisdictions are so small they fly under the media radar but are big enough to be semi-anonymous–urban local government in Oz has a bit of a problem there.)
I’ve lost the cite, but I remember reading a study of bus services, showing that for privately operated systems economies of scale ended when bus fleet size reached 500 and diseconomies of scale kicked in when fleet size reached 1000.
Diseconomies of scale in municipally operated bus systems started when the size of the bus fleet reached 2.
So something can’t fail unless it fails everywhere? I don’t even recall a financial crisis in Oz.