04/14/2010 05:12 am ET | Updated May 25, 2011

Bankers are the New Lawyers

If free market types are to grapple effectively with the late crisis, they need to get one thing clear in their heads: The mega banks are not free market institutions. They are agencies of the government.

Creating and maintaining the currency is a core function of government, laid out right in the Constitution (c.f. "and regulate the Value thereof"). In a modern financial system the banks are the mechanism through which government does that.

Think about lawyers, also government agents. Officers of the court, they are licensed distributors of a government service. One of the government's jobs is to do justice; lawyers are the retail distributors of that justice. They have monopoly access to the government's "justice distribution channels." Similarly banks are the licensed agents though which government maintains its currency.

Free-market advocates don't want to set lawyers free precisely because they are government agents; setting lawyers free is a lot like setting government free. We want lawyers to be less powerful, not more, make less money not more; and we are willing to use the law to do and if it takes tying them up in regulations like arbitrarily reducing contingency fees to do it, then most people think that's a fair thing to do.

Government-backed bankers are even more powerful and dangerous that government backed lawyers.

In any event, arguing for banking de-regulation as such, as many of us did in the 1980s and 1990s, is futile. No modern banking system can be deregulated in principle; apparent deregulation will always be a dangerous illusion. Even in a banking system with few apparent regulations the government remains in charge. The government is always the great banks' biggest client and thus will always make most of the rules, even if it pretends not to.

Where your treasure is there will your government's heart be. Which is why the apparent deregulation of the financial sector under Reagan and Clinton -- really the replacement of black letter law with regulatory discretion -- ushered in the most devastating politicization of banking in American history.

'Let's deregulate' is not a side in this fight. Free market types just have to hold their noses and get into the regulatory debate. Our mission: to roll back the power of the government/mega bank alliance. If that makes you uneasy, just keep telling yourself 'it's just lawyers, but worse.'

Andrew Redleaf is the founder and CEO of Whitebox Advisors. Celebrated by the New York Times and others for predicting the mortgage crisis long before it happened, Redleaf's monthly client letter is avidly read and quoted not only on "the Street" but also in the financial press.

Richard Vigilante is the communications director of Whitebox Advisors and also the publisher of Richard Vigilante Books. He has served as editorial director of Regnery Publishing and as an editor of National Review.