National Affairs recently ran an article on financial markets and regulation that was the most clear-headed, non-ideological commentary I have seen. The author, Nicole Gelinas, makes five main points:
- Capital markets are important because they allocate a key resource (money!) among various projects and sources
- A free market of buyers and sellers, or lenders and borrowers, is the most efficient form of capital market
- Some regulation is essential to the smooth working of a free market
- This includes regulation of leverage, speculation and complicated instruments
- Explicit or implicit government guarantees (eg. too big to fail) distort the free market
But read the article yourself. It’s not long, and it’s awesome.
Thoughtbasket 
I’ve been thinking about this “too big to fail” business for awhile now. We’ve come a long way from the Roosevelt/Taft trust busting days and we are paying dearly for it when government thinks it has to bail out a bunch of failed monster sized companies.
The issue in the ind is a power grab by Washington. — http://econometrician.wordpress.com/2009/12/19/politization-as-regulation/