Arnold Kling  

The Financial Regulatory Chess Game

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Edward J. Kane writes,

Regulation is best understood as a dynamic game of action and response, in which either regulators or regulatees may make a move at any time. In this game, regulatees tend to make more moves than regulators do. Moreover, regulatee moves tend to be faster and less predictable, and to have less-transparent consequences than those that regulators make.

Sounds like what I call The Chess Game of Financial Regulation. Pointer from James Kwak.

Kwak, his co-blogger Simon Johnson, and I are all deeply frustrated that regulators think that next time they will be able to get it right in regulating big banks. Our view is that big banks are inherently more difficult to regulate, if nothing else for political economy reasons. When the political system can neither regulate you nor allow you to fail, things are really messed up.

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Matt writes:

This reminds me of my friend in high school who, when he liked a girl, would shower her with attention, compliments and gifts. The girl would be gracious and thankful but never really seemed to return the romantic intentions. But for some reason each time the girl finally had enough and told him that they had no interest in him, he would start saying things like, I didn't give her the right compliments or I didn't give her a nice enough gift. I think the problem was that when he intitially started showering those girls with attention, they would smile at him and talk to him and hug him when they saw him in the hallway. I think it was difficult for him to sort out the signals women were giving him and then connect them to his actions appropriately.

This seems to be a phenomenon that causes problems in any human process that involves ego. It seems to me that the problems my friend had and the problems regulators have trying to tame the ubber greedy super rich are one-in-the-same.

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