This is a story we all know: the Great Depression was caused by market failure, the predictable fall‐​out from the excesses of the unrestrained, unregulated, Wild West that was the securities markets at the dawn of the 20^th century. After all, before the 1930s, there was no Securities and Exchange Commission. The state securities laws, the so‐​called “blue sky laws,” were also products of the early 20^th century, largely implemented between 1911 and 1931. These laws, as well as the Securities Act of 1933 and the Securities Exchange Act of 1934, tamed the wild speculators that had been defrauding the American public by requiring transparency in the markets and promoting thorough disclosure in securities offerings.

But is that story true? Paul Mahoney, Dean of the University of Virginia School of Law, has dug deeply into this narrative in his recent book, Wasting a Crisis: Why Securities Regulation Fails. The results of his research and analysis reveal a mismatch between the received wisdom about the causes of the Depression and the actual data, and a pattern of crisis‐​narrative‐​regulation that has persisted through the recent Great Recession and the implementation of Dodd‐​Frank.

Dean Mahoney recently shared his thoughts on these and related issues at a book forum at the Cato Institute. Joining us was also banking regulation scholar Heidi Schooner of the Columbus School of Law at the Catholic University of America, leading to an interesting discussion of the externalities of bank failures and the application of banking regulation principles to non‐​bank entities.

Watch the video of the event: