The current global financial and economic crisis highlights the ongoing
tug-of-war between those who pull toward free markets and those who pull toward
strict regulation of markets—between those who pull toward libertarianism
and those who pull toward paternalism. Rising stock markets and economic
prosperity empower those who favor free markets and libertarianism; stock market
crashes and economic recessions empower those who favor strict regulation and
paternalism. This article discusses the current crisis against the backdrop of
earlier crises and focuses on margin regulations, which limit leverage;
suitability regulations, which require providers of financial products to act in
the interests of their clients; blue-sky laws, which prohibit securities deemed
unfair or unduly risky; and mandatory-disclosure regulations, which require
providers of financial products to disclose pertinent information even if
potential buyers do not ask for it.