In my ongoing work to understand the financial crisis through a communication lens, a colleague of mine suggested this piece by law professor Jeffrey Lipshaw. Near the beginning of the paper, he notes that
Regulation needs to have an epistemological modesty about it, a certain lack of presumptuousness, all of which is belied by disciplines that think that complex causes can be reduced to (a) simple and singular utility function (rational actor economics), (b) complex functions that can actually model the world’s almost infinite contingency (behavioral economics), or (c) an after-the-fact ascription of blame (law).
Though it is not in a language most would use, Prof. Lipshaw nails it. The words and arguments that we use to describe the crisis are themselves cognitive shortcuts, we will never be fully able to capture the complexity. Consequently, our ability to prevent another financial crisis or future financial crises through regulatory measures (which is also subject to these oversimplifications) is also suspect.
And yet, it seems that people are blaming deregulation for the meltdown, which has been eliciting a pro-regulation policy response. Hopefully cooler heads will prevail, but given some of the proposals by the Obama administation, my fears are not completely assuaged.