Isn't Systemic Risk an Artifact of Government?

(I said something similar but my husband says it so much better over at NRO-The Corner)

The whole financial-regulation debate has moved dangerously away from some central principles of free markets. At root, the financial system amounts to nothing more than voluntary exchanges among human beings who don’t have a right to obligate others that they didn’t contract with. Proper rules of the game (the real meaning of regulation) would ensure people pay for their own mistakes — or their private compatriots who assume the risk — and not ensure that government assumes anybody’s risk. Financial institutions have been regulated, artificially promoted and capitalized and indemnified for decades, which is the entire source of the so-called systemic risk.

Think of it this way. As the great Arthur Seldon said, "Risks which cannot be removed or shifted profitably must be born by the entrepreneur. He will generally do so only as long as his expectation of profit outweighs the chance of loss." Systemic risk can therefore exist only when there is systemic removal of that chance of loss. Government (or organized thievery = same thing, essentially) is the only thing that can do that. Systemic risk cannot therefore exist without a government distorting the market.

We have reached a position, however, where regulation gets a pass, no government agency is eliminated or reprimanded for even disastrous interference in the market (eg Fannie Mae and Freddie Mac), and we are now taking indemnification to a new level. What we will end up with is basically a system of commerce whose resemblance to capitalism is remote. That is something the American people need to appreciate in this debate

He also wrote a very details post on Over-Regulation here. Well worth your time.