Wasting a CrisisWhy Securities Regulation Fails

Wasting a CrisisWhy Securities Regulation Fails

Paul G. Mahoney

Print publication date: 2015

ISBN: 9780226236513

Publisher: University of Chicago Press


This book argues that policy responses to financial crises are similar across time and place and are generally ineffective or counterproductive. Political actors, hoping to avoid blame for a financial crisis, create a “market failure narrative” arguing that misbehavior by securities market participants, rather than prior policy errors, was the primary cause of the crisis. Regulatory reforms are therefore designed to solve problems that are either non-existent or tangentially related to the crisis. The reforms often decrease competition and concentrate the market share of leading financial firms. The book illustrates the point primarily but not exclusively with evidence from the New Deal-era securities reforms in the United States. Contrary to the widespread belief among economists, historians, lawyers, and journalists that the New Deal securities reforms are a quintessential example of “good” regulation that addressed clearly-identified shortcomings in the U.S. securities markets of the late 1920s and early 1930s in a sensible and durable manner, the book provides evidence that Congress’s diagnoses were systematically inaccurate and its remedies reduced competition in the securities industry. It uses the analysis to draw lessons for more recent reforms, particularly the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act of 2010.