Nobel laureate economist James Tobin (quoted in this week's Economist) predicted the current financial trajectory in a 1984 lecture, tying it to the adoption of computers to facilitate transactions: "[W]e are throwing more and more of our resources, including the cream of our youth, into financial activities remote from the production of goods and services, into activities that generate high private rewards disproportionate to their social productivity. I suspect that the immense power of the computer is being harnessed to this 'paper economy', not to do the same transactions more economically but to balloon the quantity and variety of financial exchanges...I fear that, as Keynes saw even in his day, the advantages of the liquidity and negotiability of financial instruments come at the cost of facilitating nth-degree speculation which is short-sighted and inefficient."
The Economist article goes on to consider that financial services need to adapt to the economy of which they are part. I.e., we have to take into consideration the kind of innovation enabled by new technologies and adapt, in this case financial services, accordingly.
If you read this blog, you know I believe the current economic system is fundamentally broken and making adjustments to how financial services are or are not regulated isn't going to be a long-term solution. I don't believe that because I hold some ideological point of view that makes a certain system right or wrong. I believe that because we're embedded in a world that's informed by our technology (as Tobin eluded to) and that technology has reached the point where it's a game-changer.
The ordering strategies and rules of engagement that facilitated life in the relatively slow-moving paper economy won't work in a massively networked world. A successful future economy will be based on an ethos entirely different from one that relies on regulation to monitor the acquisition and distribution of assets. This ethos will be informed by technology that allows transfer of information approaching the speed of thought, rapid prototyping, low- or no-cost creation and distribution of many goods and services, time shifting, social networks, the "wiring" of the physical world, and virtual worlds that are independent of physical location. How this plays out depends on if we have indeed reached a critical mass of folks who are tuned in enough to this reality to know how best to engage the new game.