Are such proposals inconsistent with a free market? I think not. The free market is not the same as anarchy. The role of government is to protect property rights and civil rights. There are rules and regulations to prevent theft, murder, and fraud, as well there should be.Mish is confused here. What meaning does "free market" have outside of meaning "free of government intervention"? And, to be consistent, this means outside of all government intervention, not just outside of the government intervention Mish finds detestable.
Glass Steagall would not have prevented this crisis, but the proposals would prevent front running trades and betting against advice given to clients, both of which I believe constitute fraud.
There is no role for government in a civil society because government is inherently anti-social: it is an institutionalized violence monopoly and it can not exist without taxation, which is theft. Theft is immoral and illegal (according to natural law/natural justice)-- it doesn't matter why the theft occurs, whether it be to feed a starving child or to set-up a government to protect people from theft. Theft is theft, it's equally despicable no matter who does it.
To the extent that government does exist and to the extent that government arrogates to itself a monopoly on retaliatory violence/justice, such an institution should concern itself with punishing actual crime: assault, murder, theft and fraud. Really this could be further simplified to assault and theft (murder is an extreme form of assault, fraud is a variant of theft involving deception... and rape falls under the assault rubric so it should go without saying).
These are the only criminal actions a government or other body need prohibit. All crimes are property crimes and assault and theft are the two archetype ways in which a property crime can be carried out. There is simply no reason and no need to get more specific by legislating individual prohibitions against specific variants of these crimes.
For example, if Goldman-Sachs is frontrunning clients by trading ahead of them, when it is contractually obligated to not do so, this is, in fact, fraud, and should be punished as such. There is no reason or need to pass a law called "Prohibition of Frontrunning" and creating a whole new class of crime for it. This point is particularly transparent when the person supporting such a law falls back on the "frontrunning is fraud" defense for why it's a just law.
Beyond that, government has no "role" in mitigating the risk of crime. Just as it would be improper for government to mandate that everybody install reinforced doors to prevent break-ins, it is improper for government to mandate that a financial firm, which is the private property of its owners/shareholders, be split into two separate financial entities to prevent the fraud inherent in frontrunning.
In reality, all these efforts will serve to accomplish is to instigate further interventionism in the conduct of private business while further intellectually sanctioning the busy-body, interventionist mindset amongst people who are following the story. Criminals always have and always will find ways around attempts to prevent their potential crimes and the punishing of their thought-crimes. And politicians always have and always will find ways to utilize these attempts in self-aggrandizing ways that enhance their own power and prestige while weakening the control of market participants over their own property.
Mish, heed your own advice and be careful of what you wish for. Let's pursue a sounder advocacy going forward-- let the government punish the criminals, let the market prevent the crime. After all, we likely wouldn't even be having this conversation if government had kept to its proper "role" in the first place, instead of regulating the disciplinary scope of the market out of existence and bailing out the very criminals you so abhor.
