Adair Turner, the new supremo at the Financial Services Authority, has promised that things will get better after a period when the FSA did not seem to have its eye on the ball or even know what was going on on the pitch. More staff will be hired and they will be paid more. Of course, the challenge is to pay them enough so that they don't go off and work as compliance officers for the banks which is what has happened in the past.
The regulatory state can impose high transaction costs and stifle initiative. As the originator of the term, Mick Moran, has recognised, it can pose a threat to individual liberty. Mick originally saw it as a positive, modernising tendency, but his recent work has acknowledged the downsides.
However, the case for financial services regulation is very strong. As Polanyi pointed out in 1944, money is not a normal commodity, but a fictitious one: 'the market administration of purchasing power would periodically liquidate business enterprise, for shortages and surfeits of money would provide as disastrous to business as floods and droughts in primitive society.'
Letting banks close in the United States in the 1930s rather than intervening with a properly designed policy instrument (which Milton Friedman accepted should have been done) led to a 30 per cent loss in GDP.