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.