First, the big financial players are global, and national regulators had powers too narrow to be able to confront them. The difficulties in coordinating the regulators’ actions, in the face of a natural tendency to preserve each one’s particular sphere of influence, was a powerful drag on the ability to rise to the challenge posed by a finance gone global.
Second, the phenomenon of regulatory capture was a definite reality. Powerful political and economic influences were at play, and in some cases prevailed. Accepting the idea that benign neglect was the right course of action was, however, a critical mistake. The global financial crisis has highlighted the limits of the idea that self-regulation and market discipline are sufficient to ensure stable financial systems.