This isn't quite accurate. Since 2007 there's been much more regulatory pressure--particularly on large commercial banks, but all financial institutions to a lesser extent.
A major issue is the regulations themselves are extraordinarily complicated and the regulatory regime is unclear. What you characterize as "deference" is more like this: the regulators don't know what regulations out of (literally) hundreds of thousands of pages' worth of regulation they can get away with enforcing or not enforcing, but for political reasons they might be called to enforce whatever regulations at whatever time, such as with the retroactive enforcing of mortgage regulations everyone was ignoring before 2007 because the political incentives were such that everyone should have access to mortgages. So regulators are incentivized--whether corrupt or not--to build soft, close relationships. (As an aside, regulators and banks are continually building sophisticated machine-learning algorithms that have access to all your financial data, as well as powerful search systems to find whatever a regulator might demand.)
Hobbes, writing in England in the 1600s, described the "silence of the law", wherein if the king's agents enforced all his laws his rule would quickly become tyrannical and lose legitimacy. Well, again, there are literally hundreds of thousands of pages of financial regulation, depending on who you ask, that can be characterized as "must follow". Enforcing them all would draw the wrath of most Republicans and moderates, because the world does need a financial system.
The regulators work softly because, honestly, they don't know what they are doing or are supposed to do. Banks try to get in bed with regulators because they don't want to end up like HSBC; people calling for their heads essentially because they were lazy about regulatory demands for an issue that ended up being politically sensitive. A large part of compliance nowadays is trying to predict what Congress cares about or might care about in the future. Regulators are glad to get the extra access. After all, when the political winds blow the right way, they have the real power. Otherwise, don't rock the boat.
There is also corruption--always, everywhere--but if I was to imagine how a "good" regulator could do his job in the way Michael Lewis demands, well, I can't imagine that ever happening.
Your greatly misrepresenting the situation. A friend worked as a lawyer for the SEC for years and as he put it, the regulations are generally sensible and straightforward, the issue is your regulating people with money which have lot's of ways to apply pressure. At the same time stepping outside of regulations generally makes you money in the short term, so nobody want's to play by even vary minimal rules.
I would hesitate to describe the SEC's regulations as "sensible and straightforward". I've never heard anything to that effect from a candid observer, and we're talking about more than just the SEC here.
But anyway, there are always bad people and there is always regulatory capture, but a robust system is one in which there is no excuse for bad things and good people are allowed to work honestly. My aim was to describe how financial regulation is broken even if it was full of good guys. In fact, what constitutes doing the "right thing" is hard to determine except in retrospect.
I am not going to suggest you spend a lot of time on this, but poke around http://www.sec.gov/about/laws/secrulesregs.htm and mostly the regulations seem reasonable. At least compared to generic government regulations which can be far far worse. Consider, some raw materials would classify as nuclear waste if used to build an outbuilding at a nuclear power plant but you could use the same stuff to build a school.
Anyway, IMO I think the issues come down to financial transactions being somewhat abstracted from 'morals'. Sure, people rarely get into finance to make the world a better place. But, it's hard to feel telling your friends to sell stock before bad news hit's is a bad idea. Toss in people chasing after a few points here and their to hit their bonus and the incentives tend to be messed up.
Many regulations seem reasonable when applied to a financial system, but seem arbitrary for any one transaction.
Having worked at a few of Goldman's peer banks, I'd also throw in that sometimes the regulatory compliance is more expensive than the fine. I worked on a board level system for tracking regulatory compliance issues and there were hundreds at any given time.
As cynicalkane points out, these regulations are far more complex than "don't be bad." You don't know who's got an ax to grind to enforce a regulation this year that's been lax for years before. Plus, IT is not cheap, generating all the reports vs paying a $50K fine? Just pay the fine, but now you're an evil big bank. You'll get over it.
A major issue is the regulations themselves are extraordinarily complicated and the regulatory regime is unclear. What you characterize as "deference" is more like this: the regulators don't know what regulations out of (literally) hundreds of thousands of pages' worth of regulation they can get away with enforcing or not enforcing, but for political reasons they might be called to enforce whatever regulations at whatever time, such as with the retroactive enforcing of mortgage regulations everyone was ignoring before 2007 because the political incentives were such that everyone should have access to mortgages. So regulators are incentivized--whether corrupt or not--to build soft, close relationships. (As an aside, regulators and banks are continually building sophisticated machine-learning algorithms that have access to all your financial data, as well as powerful search systems to find whatever a regulator might demand.)
Hobbes, writing in England in the 1600s, described the "silence of the law", wherein if the king's agents enforced all his laws his rule would quickly become tyrannical and lose legitimacy. Well, again, there are literally hundreds of thousands of pages of financial regulation, depending on who you ask, that can be characterized as "must follow". Enforcing them all would draw the wrath of most Republicans and moderates, because the world does need a financial system.
The regulators work softly because, honestly, they don't know what they are doing or are supposed to do. Banks try to get in bed with regulators because they don't want to end up like HSBC; people calling for their heads essentially because they were lazy about regulatory demands for an issue that ended up being politically sensitive. A large part of compliance nowadays is trying to predict what Congress cares about or might care about in the future. Regulators are glad to get the extra access. After all, when the political winds blow the right way, they have the real power. Otherwise, don't rock the boat.
There is also corruption--always, everywhere--but if I was to imagine how a "good" regulator could do his job in the way Michael Lewis demands, well, I can't imagine that ever happening.