Architects of the summer's massive financial regulation bill proclaimed it would end "too big to fail," but did it actually make the problem worse? Billionaire investor George Soros thinks so. He says the moral hazard is worse now than ever, as the bill institutionalizes bailouts. He made the remarks at a conference on Sunday in Bretton Woods, New Hampshire. Is he right?

John Detrixhe at Bloomberg reports Soros saying:

The evidence is overwhelming that the first priority of the authorities is to prevent a market collapse, and everything else has to take second place.

To be sure, that's what happened in the recent crisis, but that was before the new regulation bill created a bunch of new rules of the financial game. For that reason, another conference attendee, former Federal Reserve Chairman Paul Volcker disagrees with Soros. He cites the newly created non-bank resolution authority as having the legal ability and will to wind down giant failing firms. He says:

You want a tough administrator, you get Sheila Bair up here and she'll tell you what will happen if you fail on her watch.

Here, he refers to the Federal Deposit Insurance Corporation chairwoman. The summer's legislation provided the regulator with the new non-bank resolution authority.

It's easy to see where both of these legendary economic minds are coming from, and it's also somewhat unsurprising that they differ in opinion. Soros largely acted as a market participant throughout his career. He understands the market's cynicism regarding the government's ability and willpower to wind down a giant failing firm. Instead, he worries that the new stability oversight powers in place, paired with the stricter capital requirements for big banks, will ensure their survival, no matter what. Therein lies the moral hazard. If they cannot fail, then they don't have to worry about taking big risks.

But Volcker is more of a regulator than a market player. Although he spent some time as an investment banker, the lion's share of his career was at the Federal Reserve, U.S. Treasury, and other policy efforts. Consequently, he has more faith and less cynicism when it comes to the government's ability to perform as advertised.

Who is correct? In a sense, they both are. The regulation bill does have some provisions that strengthen large firms' presence as being too big to fail, but it also contains provisions that explicitly intend to wind down the same firms if they run into big trouble. We won't know for sure which of these seemingly opposing forces win out until faced with another giant firm on the brink of failure.

If anything, it probably depends on the situation. If you have one big firm failing in isolation, due to some serious internal problem or fraud, then the non-bank resolution authority will sweep it up and dispose of its parts. It's easy to imagine this occurring at a time when the economy is on otherwise sound footing.

But if a financial crisis looms and several big firms face failure, then the resolution authority may find itself in a pickle: for example, if the biggest six banks in the U.S. all failed simultaneously, there would be little left of the financial industry. It's hard to see how a regulator could fix a mess that big without a bailout as a part of the solution.