Regulation is part of the con game

Larry Ribstein writes:

Today’s WSJ reports on the numerous investigations of Madoff by the SEC and other agencies that failed to catch him. Of course regulators and other readers will draw the wrong lesson. So in a probably futile effort to prevent this, let me remind readers what I said here and here: that the lesson is not that we need more regulation. As I said in the last post:

I doubt that any government agency will ever do as good a job as a vibrant market whose participants are alert to the potential for fraud rather than lulled into a false sense of complacency.

A regulator, psychologically, can be more of a placebo than anything else. But unlike the positive placebo effect on an individual's health, the warm and fuzzy thought of an omniscient traffic cop preventing all types of fraud does not lend itself well to the marketplace, the way it might with a soul.