The new chief executive of Evercore, Ralph Schlosstein, offers the following assessment of the financial crisis in an interview published in today's Financial Times:
Wall St, business in general, even members of the Democratic party argued for a free market system, and we've found that completely unbridled animal spirit has risks. There was a too laissez- faire attitude about the risks in the system, and we also have to be equally cautious about swinging too strongly in the direction of over- regulation.
It's interesting to see Mr. Schlosstein joining the Economist in warning against going too far in the direction of socialism, or "over-regulation."
The view he expresses blaming the current problems on the "free market" and "unbridled animal spirit" is widely expressed and held, but it certainly is not the only view. Others argue that the crisis is at least in part the result of government missteps, such as policies that aggressively subsidized homeownership or the decisions to seize Fannie Mae and AIG without shareholder votes.
Whatever one's view of the causes, the idea that the American economy was "completely unbridled" seems to be an overstatement. One could argue it needs a bigger bridle, or a better bridle, or a more expensive bridle. But there is and has been a bridle: a Securities and Exchange Commission with an $875 million annual budget, an Office of the Comptroller of the Currency with a $705 million annual budget, an Office of Thrift Supervision with a $283 million budget, and a Commodity Futures Trading Commission with a $116 million budget. That's not even mentioning the non-governmental Financial Industry Regulatory Authority, which spends another $800 million or so dollars a year on regulation and enforcement, or the numerous Senate and House committees that police the financial industry, or the 50 state attorneys general (remember what Eliot Spitzer was known for before the prostitution scandal?), or local and federal prosecutors, or the Federal Deposit Insurance Corporation, or the Securities Investor Protection Corporation, or the Federal Reserve Bank. An advocate of the free market might suggest that there are plenty of regulators already in place, and that, contrary to Mr. Schlosstein's assessment, the system that has existed to date doesn't exactly qualify as laissez- faire.