I personally can't stand Paul Krugman. I know he's done good work in academia, but his op-eds push a liberal agenda regardless of the evidence in favor of it.

In this case, how would the federal regulators know how to price risk better than the owners of financial businesses? Krugman doesn't say. He posits that they have some magic knowledge by virtue of being government agents.

The truth is, there was a unprecedented bubble in real estate values and real estate related debt. No one knew how to price them correctly. For a regulator to attempt to do so would be like a regulator setting the right price for Yahoo in 1999.

Neither does Krugman mention past failed financial regulation. Canada had only a handful of bank failures in the 1930's, compared with thousands in the US. The reason was that banks in the United States were kept small by anti-branch banking laws designed to keep any one bank from having too much power. The larger banks of Canada survived, not so the banks of the US.

What assurance do we have that the current regulators will get it right? Many people in public life seem to be drawing bad lessons from the current crisis so far. I'm inclined to think that they won't get it right.