Eliot Spitzer, New York Attorney General for a "populist crusade" against Wall Street, certainly never gave conservative free market enthusiasts any reason to like him. As an exhaustive New Yorker story detailed back in 2003, Spitzer's regulation campaign earned him more than a few critics. Bruce Bartlett, conservative supply-sider and former Reagan adviser, was one of them. Thus, though Andrew Sullivan also remarked on the curiosity, no one was more surprised than Bartlett when he found himself in agreement with the disgraced former governor early this week. Calling the two "strange bedfellows" may spark a laugh or two (there are no reports yet of money changing hands), but we're just doing our jobs. When traditionally hostile pundits agree, it's time to take a closer look.
In a Tuesday article for The New Republic, Spitzer warned against over-regulating in response to the financial crisis. In fact, he argued, the tools for proper regulation are already in place.
The truth is that multiple existing agencies already have, as part of their core responsibility and legal authority, the obligation to protect consumers and oversee financial markets ... The regulatory failures of the past decade were in large part failures of will and ideology, not power.
Our market has been--and will continue to be--undermined by regulators who are intellectually or ideologically unwilling to confront powerful market players. Too many of our regulators have been tarnished by the culture of Washington, where the constant movement between government and the private sector has created a fear of disrupting the status quo. It is an environment where stringent enforcement--the very type we needed--jeopardizes future confirmations, alienates potential clients, and engenders social ire. This cozy world isn’t exactly corrupt. Rather, it perpetuates an insidious process of socializing the regulators and the regulated alike.
Instead of adding bureaucracy, we should be using the government to help invigorate shareholders to police companies. They should be empowered to control executive compensation, eliminating all the conflicts that now encumber those decisions ... Shareholders, like all stakeholders, will make a better determination about the use of their capital than bureaucrats who don’t ever suffer the downside of a bad investment.
Bartlett, astounded, concurred:
To my shock, disgraced former New York Governor Eliot Spitzer has written a very good essay on the problem of regulating financial markets in the New Republic...
He makes the point that there really isn't any need for more laws and regulations to deal with the problems that led to the meltdown in financial markets. The Fed, SEC and other agencies already have all the power they need. This is a conclusion likely to offend liberals and conservatives equally.
Spitzer makes the point that regulatory capture is a big part of why federal agencies looked the other way at actions by financial market players that should have raised red flags. It's a fact documented by left wing historians like Gabriel Kolko and right wing economists like George Stigler that those being regulated by government eventually take over the agencies that regulate them.