This should be short. ?If you want more, you can read my old piece, “Who Dares Oppose a Boom?”

Laws are only as good as?those that enforce them. ?There was no lack of power in the hands of regulators prior to the financial crisis. ?There was a lack of willingness to use the power given, because regulators were discouraged by those above them from using the powers that they could use. ?That included both political appointees to high-level positions in the bureaucracy and Congressmen.

The real risk today is not that the laws are inadequate. ?Dodd-Frank has its flaws, and I didn’t like handing so many things over to committees, but with respect to banks, it is better than what we had previously. ?The risk is that regulators will once again not use the powers that they have, and be lax in enforcement.

I’ve argued before that state regulation of insurance is far superior to?federal banking regulation. ?There are several reasons for this:

• Small-mindedness is good in regulation. ?Protect the downside, let the regulated suffer.
• Actuaries have an ethics code. ?Their equivalent inside banks do not. ?Regulators do not. ?(Chartered Financial Analysts also have an ethics code, as an aside…)
• It’s harder to corrupt 50 states than one federal regulator, particularly if you can choose that federal regulator.

Now, the next big problem may not be in the finance sector… I tend to think that we will see a major developed nation go through a crisis of its finances as the next crisis. ?But if there is a significant financial crisis, it will be because the regulators did not do their jobs, whether under outside pressure or not.