Louis Brandeis on the national financial crisis

As interpreted by one of the leading Brandeis biographers of any age, Melvin Urofsky:

Read it in full in the New York Times. A snippet:

For Brandeis, regulation was not supposed to be a restraint on innovation or the entrepreneurial spirit, but rather a check on unbridled greed. He believed in a free market, but one in which the government enforced rules of fair competition so that the most talented could succeed. Clear rules would help ensure that business was conducted fairly and openly.

“Other People’s Money” can help us navigate the new era of regulation that we are likely to enter. It would be wise for Mr. Obama to heed Brandeis’s advice before imposing stricter rules on banking and the stock market. For these plans to be effective, Brandeis would caution, they must be more than cosmetic. Government should oppose banks’ purchases of stock brokerages, for example, to avoid the problems that Brandeis exposed. Furthermore, new rules won’t accomplish much without effective watchdog agencies. The Securities and Exchange Commission, for example, seems to have abandoned its oversight responsibilities during the Bush years, and now, we are paying the price.

As we reel from the financial crisis, “Other People’s Money” and similar indictments of immoral banking behavior will likely find a new audience. Some of the trouble-making bankers will, perhaps, be temporarily chastened. But before we know it, they will once again be complaining about regulation’s “interference” with the market. Don’t listen to them. Good regulation will keep us from losing sight of the importance of those same principles that Brandeis emphasized so many years ago — honesty, openness and a fair playing field.