Hey, at least when there's a bank run I (well not me, since I have no money in US banks) will see my federally insured $20k or whatever, even in the case of collapse.
The problem here is that regulation is not voluntary. So, for example, if I don't trust this exchange - fine, maybe I will only go to government approved exchanges. But then another fella may feel he trusts this unapproved exchange. It's his choice, why should I care? Why should I be forcing my concerns upon him through government, in the form of regulation? Because, of course, if regulation exists for exchanges, this other exchange wouldn't be operating and this other fella wouldn't actually have a choice.
So it's important to remember - insurance and audit are great things. But combine them with government policing and force and you have a regulation, which only leads to restricting the choices consumers have.
Because in the real world there's a huge amount of information asymmetry. Because most consumers are not informed (not because they don't put the effort but sinmply because they can't just look at the bank's books and decide whether they're well off), this asymmetry greatly affects a consumers decision to choose "correctly": it's not really a free market.
Obviously it depends on the regulations, but a lot of regulations are about making sure that there's at least a minimum bound in the "quality" of products offered, because of the asymmetry at play here. If there is none, we can end up with "bad" products(that don't seem bad because we're uninformed) crowding out "good" ones, and having the entire market be worse off.
The 2007 crisis was a perfect example of asymmetry causing markets to crash: obviously there's the whole aspect of consumers being mislead on their mortgages, but there's the even greater aspects of banks misleading each other! Because of the opacity of the market of derivatives (nobody knew just how invested everyone was in on certain obligations) no bank could make informed decisions on what to do with their positions.
If we don't restrict some choices in the short term, then we can end up with no choices in the long term. In areas of extremely high uncertainty, regulation (notably concerning transparency) is necessary to make the market freer (in the actual definition, not from the common usage of free=no regulation).
> If we don't restrict some choices in the short term, then we can end up with no choices in the long term
Is it a chant or something? We can end up with no choices. Or maybe we will end up with more choices. Can you prove it logically without manipulating data and suggesting it to be evidence? Because the 2007 crash you mentioned can be explained from a different point of view, completely different from yours.
I can also say "everyone being able to own guns actually increases overall safety and if you don't allow people to own guns, we may end up with less safety". Do you realize this sounds exactly like your argument?
I am not going to be the guy who figures out how to unify the world's economists.
I'm not saying that every instance of markets should be regulated, I'm saying that some markets in their unregulated form are not free, and can end up imploding on itself. You might argue that a market in that form isn't worth saving, but if a small bit of regulation can push the market in the right direction you can end up with a healthy market.
You're going to have to explain your last statement, because I don't get it.
Every economic argument will reach the point of some guy saying "A" and another guy saying "not A" anyways though, so might as well just stop here.
> Because in the real world there's a huge amount of information asymmetry.
True. And the "solution" of government financial regulation is to allow the people with more information to create compulsory regulations that benefit themselves.
Unless of course there was actually a big problem, like widespread bank runs. Even if the FDIC is able to magically create money (in cooperation with the Federal Reserve and/or US Treasury), the FDIC can't magically create wealth.
