In one of his characteristically thoughtful blog postings (available here), Ed Fallone argues that market regulation follows the Second Law of Thermodynamics, which states (to paraphrase) that in any closed system, disorder will reign over time. Ed argues that this principle holds true for federal securities regulation, where technological and market changes have made the comprehensive statutory scheme of market regulation obsolete. With respect to non-financial institutions, he proposes (consistent with the Obama administration’s proposal) replacing our current scheme of detailed disclosure rules with regulation that focuses on the consumer (the investor), and the consumer’s need for multiple products to choose from as well as information to make product comparisons.
It does seem to make sense to consider the needs of investors in creating legislation aimed at protecting investors. But in my view, any new regulatory scheme aimed at protecting investors should leave to the states the regulation over business organizations’ internal affairs.