Economic theory works in theory but the real world is made up of people who constantly push for favorable regulations and systems. You don't need to own a politician; just pressure your professional standards board. Think about FASB. (see here for link)
In the height of the financial crisis, the Financial Accounting Standards Board were pressured to pass FASB 157 (“Fair-value accounting”). Banks were complaining that some of their holdings were difficult to value, thinly traded, tough to mark. So 157 passes and it allows the accountants at banks to mark these to a model rather than the last trade.Derided as “Mark-to-Make-Believe” it leads to the unfortunate situation: The same bad models that led to the original purchase were then now being used to value these holdings. As these bad buys plummet in price, investors in banks have no insight into the loss potential — they are hidden from view, along with the true financial condition of the company. This sort of accounting ... would never be tolerated in a nation where investors mattered more than bankers. Instead, it rewards the incompetent and allows near insolvent banks to pretend they are solvent, thereby allowing the granting of huge bonuses.
I bet you never thought that free markets were so contrived.
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