The Restoring American Financial Stability Act of 2010 is brought to you by the same people who called a curtailment of civil liberties, the Patriot Act, and the imposition of new taxes and substantially no new services for at least half a decade, the Patient Protection and Affordable Care Act. It lives up to Congress’ history of misnomers. The act will destabilize the American financial system. It was written by the people it intends to regulate. The same big bankers who got bailed out essentially wrote their own rules going forward. Do you think they wrote those rules to benefit you? (Do you think the health care companies that wrote the health care bill wrote it to benefit you?)

You weren’t under the illusion that honorable, vote-fearing politicians wrote every word of every bill, were you? They haven’t even read it, let alone written it.

The goal of the regulation seems bold and noble. It claims to protect the American taxpayer by “ending bailouts.” But the whole thing is a bailout.

In writing about markets, Adam Smith admitted over two and a half centuries ago that, “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public.” The difference is that a private cartel can fall apart if even one member defects to take advantage of the artificially high prices. But when the government gets involved, then you are truly conspired against.

There is a simple way to restore American financial stability: get the government out of it. You might ask how to do that, given that it is so entrenched.

Let’s run an experiment, a test: let a few new banks opt out of all government regulations. Let them proclaim they are not FDIC-insured nor federally regulated. Let them issue their own currency. Let them make whatever loans they like, and keep as much or as little cash on hand and in reserve that they choose. If they all choose poorly, they will quickly fold because no one will voluntarily give them their hard-earned money. But if they can convince you, personally, to trust them with their money, just as thousands of other companies do when you buy their shares, then why should the both of you be prevented from making an exchange? Why should some politician be able to kill the deal (unless he’s getting a kickback for killing it)? Why should the entrenched, big banks be able to prevent this competition?

Andrew Ross Sorkin, author of the bestselling Too Big to Fail, a rich history of what really happened on Wall Street and in Washington over the past few years, interviewed hundreds of the top people involved in the financial crisis. These were all the titans and former titans of bankers, regulators, policymakers and legislators.

I asked him, out of all the people he interviewed, each of whom presumably had an answer for how to prevent this from happening again, how many of them suggested less government, less regulation? How many suggested abolishing the Federal Reserve or federal deposit insurance, or allowing competing currencies, or anything of that nature? His answer was short but telling. “Zero.”

The chieftains running the banks today can’t even imagine a world where the rules are written by the people and not by the politically connected.

Can you?

phil@maymin.com