Why not do this? Why not explain the hazards of what people are doing? Before you say that Bernanke did do this, I know I haven't heard from a soul who feels they have been warned. I also know there are plenty of reckless managers out there who might have reined in their recklessness, thus making the pain more palatable.
Or how about the Securities and Exchange Commission? SEC head Mary Jo White could have said that, while the Commission itself may not be able to agree on the insurance of money funds, it's her intention -- when push comes to shove -- to make it so that nobody who reaches for yield will be protected. Why can't she tell us this? All she has to do is say that the lobbying efforts have made it hard to stop, but that she will not make life easy for those who do this.
Or how about Gary Gensler, the head of the Commodity Futures Trading Commission? He could have given a speech saying that those who buy newfangled collateralized debt obligations, if they creep back, are idiots who will get hurt if they do. Call them idiots. There's nothing wrong with that. There are a lot of idiots out there. Or why doesn't Gensler talk openly about how the industry wants opaque swaps because they can gaffe the clients more easily with higher fees? Savvy people know this. The more stupid clients don't.
In other words, why don't regulators give speeches warning both managers and clients about stupid things they do that hurt the system? That way, they can tamp down on their own bubbles in their own industries, and they can warn dumb clients that they are going to be crushed and that, therefore, they'd better be vigilant. You can't legislate out morons, but you can call them out and make people realize when they are doing something that could put the system at risk.Instead, they stick with the process that tends to be captured by the industry itself -- and if there is one thing we know about the financial-services industry, it's that these firms will not do what's responsible. They'll what's most profitable. Therein lies the real problem. Just spell things out, either publicly or behind the scenes with background interviews. In this way, the parties that could jeopardize the system can be held at bay. In this way, all of us will be better protected than we are now from the shenanigans and the foolishness that breed bubbles and cause pain and loss for all good guys who try to be prudent, but are upended by the greedy and the reckless.