At least someone important agrees with me

Finally Mervin King says what I've been thinking for a while: Proposed regulatory reforms will not prevent another financial crisis. Why aren't more people concerned about this?

The whole "better regulation" fallacy is enormously frustrating. The political commentary class always seems to think that we can solve a problem by having better/smarter regulatory oversight (implying that previously either people weren't given such responsibility, or that they were incompetent/negligent). But most of the time crises are caused by an "unknown unknown" (or black swan or whatever you wish). Regulators are not omniscient and they focus on preventing the causes of the last crisis, which is completely natural, but leads them to be blindsided by the future problem.

Does anyone really think that if we had had better regulation someone would have foreseen the mortgage crisis and stepped in? If thousands of people with huge financial incentives to do so failed, I doubt a regulator would. It's simply too difficult to divine the potential cause of problems in the future with complex systems. After all, central planning would work better if such regulation were possible (cf hayek / information asymmetry). And even if they had magically identified the problem, there would be enormous political obstacles to intervention, which would require causing clear short-term harm to avoid hypothetical long-term damage (accusations of crying wolf etc.).

So, what can / should we do? Instead of focusing on setting up more magic regulators, we need to have laws that structure the 'rules of the game' in a way that minimizes the potential for crises (e.g., reinstate the glass-steagal act). This is not to say that regulators have no useful role; it's just that "better regulatory oversight" is not going to avert a future financial crisis.

edit: And Volcker agrees with me too