In financial markets, asset bubbles cause real trouble when investors can borrow freely to expand their holdings. To prevent such bubbles, we must limit the amounts that people can invest with borrowed money.
I want to extend the point to cover government, where the chief characteristic is playing with other people's money. Big Finance and Big Government have much in common. Both are coveted by Harvard graduates. Both are characterized by an arrogant sense of entitlement and importance.
Instead of thinking of the pending bailouts and financial regulation as a new era of government supervisions of markets, think of it as preserving the system in which a Harvard elite controls other people's money. In fact, very little is likely to change. Reading the news stories about how Secretary Paulson plans to implement the bailout, it seems as though the same people will be in charge of the money. Print some new business cards, change the logo on the front from "Goldman Sachs" to "U.S. Treasury," and everything else continues as it was. It's just that it becomes a lot more difficult for ordinary people to opt out of using the elite's money management services.