In the previous post I pointed to some of the ways that financial regulators in Korea and the US have credibly committed to bad regulation by making themselves bad at collecting financial market information. But there were two unresolved issues I'll cover now: Why would regulators want weak regulation? How did Korea get out of this problem? Answer 1: Sure, there are lots of reasons why regulators would want to have weak regulation. There are the usual stories about crony capitalism , revolving doors , etc. Sure, there probably is something to these theories. But there is also something less sinister, but more problematic going on: loose regulation might be good for the general economy in the short-term . In fact, this is how US regulators have been talking about the issue (for example see this great article from the FT ). The basic argument is that enforcing tight capital adequacy requirements, lending standards, etc., makes less money and credit available to lend to busine...