A libertarian view of financial regulation

In The Wall Street Journal, Gerald P. O'Driscoll writes:

Public choice theory has identified the root causes of regulatory failure as the capture of regulators by the industry being regulated. Regulatory agencies begin to identify with the interests of the regulated rather than the public they are charged to protect. ...

Congressional committees overseeing industries succumb to the allure of campaign contributions, the solicitations of industry lobbyists, and the siren song of experts whose livelihood is beholden to the industry. The interests of industry and government become intertwined and it is regulation that binds those interests together. Business succeeds by getting along with politicians and regulators. And vice-versa through the revolving door.

We call that system not the free-market, but crony capitalism. It owes more to Benito Mussolini than to Adam Smith.

His point is correct and well-documented, but I get a chuckle out of the fact that the author appears to be an example of what he criticizes. According to his short bio, he "has been a vice president at Citigroup and a vice president at the Federal Reserve Bank of Dallas."

Regarding housing he writes:

In the U.S today, we are moving away from reliance on honest pricing. The federal government controls 90% of housing finance. Policies to encourage home ownership remain on the books, and more have been added. Fed policies of low interest rates result in capital being misallocated across time. Low interest rates particularly impact housing because a home is a pre-eminent long-lived asset whose value is enhanced by low interest rates.

Distorted prices and interest rates no longer serve as accurate indicators of the relative importance of goods. Crony capitalism ensures the special access of protected firms and industries to capital. Businesses that stumble in the process of doing what is politically favored are bailed out. That leads to moral hazard and more bailouts in the future. And those losing money may be enabled to hide it by accounting chicanery.

For the record, I don't agree with the author's conclusion in the final paragraph of the WSJ article. The author opposes government regulation. I favor regulation, but believe it should be based primarily on proactive and consistent automatic rules, rather than reactive and fickle human judgment.