Like many other aspects of my political and economic views, I have an opinion that does not fit perfectly with traditional definitions of “Republican” or “Democrat” or “CENTRIST” and “Socialist” or “CAPITALIST”. Many capitalists struggle with the issue of regulation. I do not. I have made numerous comments here about my preference for more regulation of capital markets whether that means the CFTC or the SEC or the OCC.

Sadly, the abuses of a capitalist system are often used as an attack on capitalism. I view these not as capitalism, but as greed. There is “greed” in communist societies where the political leaders get special treatment and live a special life that is much higher than the rest of society. There is “greed” in capitalist societies where the market participants run wild and free of government regulation. We have had way too much greed and both an absence of regulation in certain markets (derivatives) and a total failure to enforce existing regulation in other markets (mortgage lending.)

Our founding fathers, made it clear that the federal government must be responsible for providing services for the common good where private entities (citizens and businesses) and local governments could not. In my opinion, regulation is one of those services where the federal government is not only necessary but required by the enumerated powers of Article 1, Section 8 of the Constitution, specifically the power to regulate commerce among the states and foreign nations. Obviously, Congress has overdone some regulations and those bad examples form the basis of complaints against all regulation by conservatives and libertarians.

The mortgage and derivatives crisis in America is a failure of existing laws and expectations of regulation to protect the common good. The banks and investment banks and non-regulated entities got a free pass to violate common sense and business practices in the pursuit of exploitive profits. Politicians and regulators encouraged much of this bad behavior and more importantly, they failed to enforce regulations that would have minimized the risks we are now facing. Free market capitalism should not mean that some capitalists are free to exploit for a time until the rest of the free market capitalists (or socialists) suffer for these abuses.

Today, I heard Secretary Paulson give his view of the importance of regulators and their need to fix the current mess (the very end of this clip). I disagree. I think that the proper role for regulators is to prevent bad behavior and to minimize the stuff that happens anyway. If it gets to the point where we are today, the regulators have failed. So I give them no credit for attempting to fix the messes that they failed to prevent or keep under control. In this case, politicians and regulators including the Congress, Administration and the Fed had the responsibility to make sure the subprime and derivative disaster did not happen. Instead, they proposed and promoted easing credit for subprime borrowers and they either intentionally looked the other way when this nonsense was going on or they were negligent in their supervision.

I know Secretary Paulson believes in proactive and preventative regulation and I do not believe he or Chairman Bernanke should be held accountable for the current failures. However, it is more than a bit discouraging to hear no one state the facts - regulators failed to regulate and that is why we are facing these dramatic situations.

Democrats that believe they can legislate excessive regulation and then encourage policies that ignore the spirit of this regulation are hypocritical and abusing their powers. Republicans that believe all regulation is a restraint of trade and interference of free market capitalism are obstructing the important responsibilities bestowed by the framers of our republic. The current crisis in our economy and credit and stock markets is a failure of regulation that already existed.