MF Global's Regulatory Lessons

Holman Jenkins, Jr., wrote a thoughtful piece in his weekend edition column regarding MF Global's demise. Jenkins rebuked those who were disappointed with the regulatory failure involving the firm. He celebrated that a financial firm engaged in overly risky activity and paid the price with bankruptcy, without government intervention.

I agree with him on that point.

However, I think he misinterprets the motivation for some, including me, to express consternation that new regulatory agencies, powers and legislation did nothing to prevent the collapse of MF Global.

I actually don't support the bulk of existing financial regulatory legislation and agencies. In my opinion, they represent the foolish wishes of largely inept, naive members of Congress and various administrations that it is practical or effective to have our existing, expensive and intrusive regulatory machinery.

It doesn't work. It gives investors, borrowers and depositors false hope. It risks making those parties insensitive to the realities of the marketplace and the vendors with whom they choose to do business.

I'd prefer to see government leave the business of deposit insurance, financial statement regulation, and most other detailed, intrusive financial regulatory areas.

Without such government-provided, monopolistic services, private solutions would arise. Firms would offer competitively-priced deposit insurance, differing by bank, thus providing an implicit credit rating. The same would be true for the purchase of various levels of audit attestation.

I'm not upset that government regulatory personnel failed to understand MF Global's condition until it was too late, or that it may have failed to identify the wrongful use of customer funds by the firm, if that occurred.

Rather, I see MF Global as the latest poster child for throwing in the towel on regulatory solutions and ripping out most of them as ineffective and overly expensive.

What's worse, looking out for your own interests, or wrongly believing the government's regulators will inform you, in advance, when your interests are in jeopardy?