Is there something particular about the securities trade that justifies more careful scrutiny by regulation than other classes of trade or commerce? To this pregnant question I answer in the affirmative, for several overlapping reasons:
(1) Securities are supremely dependent on both an intricate structure of property and contract law and a stupendous architecture of technological sophistication, both of which, in turn, evidence a peculiar susceptibility of plutocratic concentration. Commerce in these tradable financial instruments, as it grows in importance and complexity, is a sure path to that socialization of costs and privatization of profits which featured so prominently in the financial crisis of 2007-08. Both law and custom grew ever more reliant on the assumption that certain asset classes (i.e., particularly important securities) would retain value and supply stability in pricing; and the lawyers and financiers whose business was grounded on this postulated stability grew ever more influential in American politics; until we reached a point beyond which no resources of government, or of central bank intervention, would be spared to preserve that stability in the face of market panic. That few Americans really grasped the character of this plutocratic shift in no way confutes the observation; the shift was indeed consummated a full decade before the 2007-08 crisis began.
(2) Commerce in securities under modern conditions unites the brittle abstraction of academic refinement with the brash adventurism of Alpha male competition. And then, at back of that bizarre amalgam lies a coddling welfare state apparatus. Perhaps some financiers flatter themselves with tales of cowboy risk-taking, where the winners are the toughest, the meanest, the sharpest; we know now that when the going gets tough, the toughest, meanest and sharpest run to the Fed and Treasury for help. Most likely these toughs have themselves held positions at the Fed or Treasury. Not infrequently, when they run to the Fed, they find there men who were recruited from their own firms to run these institutions. Whenever I read some conservative holding forth with tales of the poor beleaguered bankers, pushed around by congressmen and regulators, I want to spit.
(3) Investment banks, securities firms, broker-dealers: like it or not, these are public institutions no less than commercial banks. Large portions of their business resemble utilities. As primary dealers, they are the counterparties of the Federal Reserve and other world central banks. Together they operate the nation’s payments system: which is why a very real fear in autumn 2008 was the collapse of that system, with the immediate and unthinkable consequence of hundreds of millions of American paychecks bouncing like basketballs. Recall that for months the Fed became the indispensable lender behind the commercial paper market for such emphatically non-financial firms as Harley-Davidson and McDonalds. (As I have intimated before, one intriguing idea for reform is whatever regulatory regime would force investment banks back into private ownership, which would amount to a direct and unmistakable blow against the doctrine of Too Big to Fail.)
The foregoing considerations (which are hardly exhaustive) comprise a set of rational grounds for arguing that the securities trade merits unusual attention from the statesman concerned with the liberty and prosperity of his country. For conservatives they comprise a set of prudential grounds, in this particular context, for setting aside, or at least balancing with more wary or suspicious treatment, the usual embrace of free enterprise.