The ongoing global financial turmoil: a crisis from too much regulation, and its misguided regulatory response

The paper addresses two issues: how poor regulation has contributed to its origination, and how current regulatory responses to the crisis are (not) differing from the poor regulation that caused it. In the first part, the paper offers an overview of the most relevant examples of poor regulation that have arguably played a role in determining the crisis, with a focus on the US and the EU. In the second part, the lessons summarized in the former one are contrasted with the actual legislative and regulatory responses adopted by the US and the EU. The conclusion offers some reflections on what is the role that law and regulation should instead play in financial markets, and argues that it should be confined to a set of clear, broad and general principles, giving up the idea of pre-determining the outcome of the competitive game, but simply dictating its rules, in the spirit of Hayek’s lesson in the first volume of Law, Legislation and Liberty.