Obama speaks as though these facts don't exist. He goes so far as to say, "[W]e're proposing a set of reforms to require regulators to look ... -- for the first time -- at the stability of the financial system as a whole." (Emphasis added.)

That is precisely what no one can do. The financial system isn't a machine. It's people -- a huge number of them -- engaging in countless transactions often on the basis of hunches that are not quantitative and never written down. How is a regulator to keep tabs on -- much less manage -- that? It cannot be done. If he tries, he'll end up stifling competition, innovation and life-enhancing economic growth.

Contrary to the foes of free markets, the choice is not between regulated and unregulated markets. As the French economist Frederic Bastiat long ago pointed out, the free market is regulated by its own logic. If we have simple, easily understood rules against fraud, then people acting in their self-interest, without privileges or bailouts, generate market forces that create order and make our lives better. The key is market discipline, which government reduces whenever it intervenes.

Is the market perfect? Of course not. The market is people. But the same kind of people will run the regulatory bureaucracy -- except they play with other people's money and have brute power in their hands. Here is where Obama's planners commit what economist Harold Demsetz calls "the Nirvana fallacy". They compare the real-world marketplace to an idealized regulatory apparatus run by omniscient bureaucrats.

But the latter is not available, so the comparison is pointless. We must choose between two systems, both run by fallible people. The decentralized, competitive market full of free people is hands-down preferable to a centralized body of clueless bureaucrats who can hold a gun to our heads. Obama says the free market is "not a free license to ignore the consequences of our actions." He's right but doesn't understand why. A genuine free market allows risk takers to fail and suffer "the consequences." Only government can grant "license" to ignore consequences. Government caused the financial morass by doing just that -- pushing banks to weaken mortgage lending standards, pressuring Freddie and Fannie to buy up dodgy mortgages and sell them as safe securities, bailing out big banks when they got into trouble and insuring bank deposits -- thereby encouraging us not to care if banks are reckless.

Government failed, not the market. Obama's answer? Just like George W. Bush's: more government.

Give me a break.