The housing crisis has tended to bring out two different responses. One is the view that says the problem is that the banks in question knew the government would bail them out if the market went down and so they were behaving quite rationally to make the high risk loans they did. On this view, if the government would really just let even big operations go bankrupt, people would figure it out and start behaving rationally. The other view is that here we have the proof that unregulated markets don't work. We are not having to write regulations telling them they should only lend money to people who can pay it back, which is a little embarrassing. The second view says this shows why everything would be fine with government regulation. Both views are shallow, in my opinion, because they both rest on the false premise that we can take a vice, like greed or ambition, and set up a system that will generate good results out of bad motives. That is the premise of capitalism: just let people be self-interested and greedy and if markets will be allowed to do their invisible hand magic, everything will be fine. Those who trust government have to explain why governments will do the right thing, and the normal explanation these days is that the desire to get reelected will give politicians the necessary motivation to vote for things that are in our interest. They don't have to care about the public good themselves, they just have to care about reelection (be ambitious) and the political system will turn their selfishness into good laws and regulations. I think of Augustine's observation many years ago that the Romans had created a system that channeled love for honor and glory into the most successful political-military regime ever. It conquered the known world. But it was still founded upon vice, and it ultimately crumbled, because all vices, whether greed or the lust for glory, carry within them the seeds of their own downfall...