Here are some things I think I am thinking about:

1.  Hillary Clinton has a plan to stop the next crash.  Here’s an op-ed over on Bloomberg View by Hillary Clinton about reforming Wall Street.  It’s titled “My Plan to Prevent the Next Crash”.  It’s basically a whole bunch of reforms that Hillary wants to slap on Wall Street.  Some of it makes a lot of sense (like the part about ensuring that executives can’t leave an imploding firm with a golden parachute) and some of it is excessive (like the “risk fee” on large banks who rely on short-term funding).  But the part that irks me is this idea that regulation can always stop the next crisis.  This just sounds like political pandering.

With Bernie Sanders hot on her heals I have to wonder if Hillary isn’t pivoting a bit here with some populist rhetoric.  By attacking “bankers” (whatever that means, I mean, “banker” is a pretty general term) she is striking a chord with her base voters.  It’s an extremist and unrealistic view that goes over well with likely voters.  But make no mistake here – no amount of regulation is going to stop the next crisis.  And here’s why.  Because the crisis wasn’t “caused” by a lack of regulation.  Yes, it was exacerbated by a lack of regulation, but it wasn’t caused by a lack of regulation.  The root cause of the financial crisis was a housing bubble in which lenders relaxed lending standards (as they always do late in market cycles) and made poor risk management decisions about to whom to lend money.  Combine this with speculative home buyers and you got the housing bubble.  Add on the securitization in the financial sector, a bit of fraud and you had a very fragile house of cards….

The thing is, bubbles are part of markets.  Markets are driven by inherently irrational and uninformed participants. We don’t make perfect decisions about the future and at times we do very silly things. Further, corporations are always finding ways to game government regulations.  And since government is slow to act the corporations are often one step ahead. So, unless the government can stop us all from engaging in the markets then I am afraid there will be bubbles in the future.  This doesn’t mean we shouldn’t have common sense regulations in place, but we shouldn’t fall for populist rhetoric about the idea that government officials can fend off the next financial crisis.