That influence can only happen if their job depends on campaign finance dollars to keep their job. If it's an unelected position and they don't have donors to answer to in order to keep their job, then they theoretically become incorruptible by the financial lobby. But, as you intimated, there is then a whole other host of issues introduced by instituting a czar with oversight that's inefficient at best.
Ironically, the post was created by the same Congress that is subject to the financial lobby and credited to two members with a long history of taking financial lobby monies.
You're right. Blindly pointing at deregulation as the cause of the crash isn't really accurate. The people in significant economic posts during the Bush administration did have the tools at their disposal in order to do something about it, and we know for a fact there were people within the SEC and other government agencies frantically waving giant red flags for years prior saying "This boom isn't real and we're about to be screwed" but all of those warnings were summarily ignored.
Actually from what I've read recently there was no connecting of the dots at the regulator level. The fed notes just before the bubble indicate predictions for slow growth. I can't recall the guy's name but the former SEC head was soundly lambasted for not enforcing many of the relevant regulations. In short, no one was waiving the red flag save a few Rs in the mid 2000s WRT to Fannie and Freddie. They were called racists that hate the poor (basically) and ignored (ironically by Frank and to some extent Dodd). I speculate that regulators and law makers were lulled into a sense of security by the legislative moves they've done over time.
The way the regulation structure was set up basically allowed people at government posts to just watch the speculative bubble happen. People tried to tell them Santa wasn't real, but who's going to listen when they're getting showered with presents?
Not enough people on either side of the aisle thought Santa wasn't real. In a larger sense we see the fallacy of such government intervention - everyone begs for it to counter the down cycles but the government simply cannot stomach taking the actions that will cool the cycle when it is overheating. It is folly to try to manage the business cycle to such a degree since government cannot bring itself to cool things down.
You did mention Glass-Steagall, which is really a big key in all of this. I'm not necessarily for across the board regulation as the answer, though virtually all classical free market doctrine says regulation of banking and finance is necessary to an extent because of exactly what just happened.
Agree it is necessary. The broad regulation argument is providing the framework for operation rather than using government incentives, punishments and bans to shape the financial market for some particular outcome. It's been proven again and again that the externalities always exist and the market doesn't react in intended ways. Set the rules (including things like Glass-Steagall) and enforce those rules.
It all came down to a combination of the repeal of Glass-Steagall, a failure to allow normal free market operation resulting in the ballooning of the financial industry which took advantage of lobbying in order to make sure they stay in a place where their balance sheets are so large and all-consuming that the government is almost in a place where they have to flush cash in when the bubble pops.
Ironically, Dodd-Frank is already making the big banks bigger and making it difficult for smaller, community banks.
I don't think the tax code really ties into this. A proper amount of regulation does need to be revised and reinforced, but it still comes down to the same problem: the financial giants have a heavily vested interest in maintaining TBTF status and the lobby machine in Washington has a heavily vested interest in its own survival. There is so much glut in that sector that they can and will outspend anyone and everyone to make sure they don't get gutted and reduced, and unlimited undisclosed campaign contributions is the perfect tool through which they can do that. Simplification and flattening of the tax code is all well and good but it won't remedy the situation.
I threw in tax code not as a financial solution but as another example of how lobbying is fed. A no deduction, flat tax nearly starves tax lobbying efforts. I'm making the same argument for financial regulation. Having insanely complicated and highly fragmented financial regulations is an invitation to lobbying. A firm Glass-Steagall type rule, firm capital requirements for lenders and firm disclosure rules for investments greatly reduces the fodder for lobbying.
I see three options here: Increased regulation. That was tried, that's what Dodd-Frank was supposed to be. It failed because the financial lobby went in and saddled small and medium firms with 20,000 pages of new regulation while doing nothing to correct market issues. The second is something like the CFPB, which has to strike a likely untenable balance between either being autonomous and given great regulatory control over the financial sector while being accountable to no one; however, the way to make them accountable is to make them subject to congressional oversight, which leads you right back to the same problem: The CFPB would be accountable to congress who is accountable to the financial lobby. The third is campaign finance reform.
