What is it with these Republicans who constantly pretend they want to clean up a system, but when it comes to the specifics, they really just want to keep the status quo. While discussing what needs to be done to fix Wall Street, David Frum expresses his concern for throttling "the creativity of the system". As Naomi Klein and Eliot Spitzer point out to him, it was exactly that "creativity" that got us into the mess we're in now.

FRUM: The fix is here. There's a -- let's do -- there are technical fixes, the kinds of things I've said about the way banks hold their securities.

And then, be careful about doing too much, because you can throttle something that I think is precious to everybody, which is the creativity of the system.

SPITZER: Well, let me respond. I got it. Not to make this partisan, but...

(LAUGHTER)

... statutes don't work. Enforcement does.

We have had for 15 or 20 years an absence of enforcement, except with a few nodes of activism, which gets beaten down over time.

What we need is adherence to very simple principles of ethics and transparency in the marketplace. And then, it would work.

ZAKARIA: On that note, we are going to take a break and come back, and discuss all of this and more. We will be right back.

[...]

ZAKARIA: And we are back with our star-studded panel -- Eliot Spitzer, David Frum, Naomi Klein and Steve Dubner.

What should be the purpose of financial regulation moving forward?

KLEIN: And this isn't a free market system. That's what's been revealed in this crisis. It's a classic, crony capitalist system, where favors are traded amongst the elites.

And, you know, I have to -- this idea that we are going to squelch creativity, you know, I think there's definitely been too much creativity in the realm of derivatives trading. I mean, we would all do with them being a little less creative, and maybe go into the arts, you know, take up creative writing.

(LAUGHTER)

This is not helping. But the idea...

ZAKARIA: Because the bonuses are huge in the arts.

(LAUGHTER)

KLEIN: But the idea that we suffer from an under-reaction...

SPITZER (?): If you (UNINTELLIGIBLE) long enough they are, if you have possession of the tapes (ph).

KLEIN: The idea that we suffer from an under-reaction to this crisis -- an over-reaction to this crisis -- to me is absurd. I mean, this has been the most incredible under-reaction, if we look at what we have some consensus about in terms of what caused the crisis.

The over-leveraging of the banks, the fact that derivatives are not regulated, the fact that the banks are too big to fail, the fact that they've become so intermingled -- we have not dealt with a single one of them, a single one of them, a year-and-a-half later. We have not reacted.

And in the meantime, we've put around $14 trillion on the table and used none of the leverage. And the whole premise of banking is that, when you're handing out money, you can put conditions on it. You can ask for all kinds of things. And it is just extraordinary that they blew that moment of leverage.

DUBNER: Can I ask you a question? So, you seem to -- I may interpret this wrong -- but you seem to feel that government is kind of handcuffed in this situation. You feel that -- you three have very different views -- I'm sorry. I don't mean to be jumping in your chair.

(LAUGHTER) It's just that there's interesting perspectives. We all have -- we have some very, very different views of how and why and to what end government should be regulating, intruding, whatever we want to call, in all these different realms.

My question to all of us is, however, no matter what you want and think is not being done, no matter what you're afraid may be done, to me the question is the larger one, which is, government right now in Washington is at this bizarre place -- we were talking about this earlier -- where, if it's not paralyzed or broken, it's pretty darn close.

It's really hard to -- it's really hard for me, as someone who doesn't really traffic in the political realm willingly or all that often, to see, where's a good outcome here from a political perspective, because I don't see it.

ZAKARIA: And by the way, on any issue, if you look at, you know, immigration, energy, it's just -- it's paralyzed, in general.

FRUM: The United States government doesn't govern all that well. We'll concede that. But the American private sector does deliver unbelievable things.

And we're sitting here at the end of a period of extraordinary technical innovation. And not just -- I mean, the Internet, we're all familiar with. But all kinds of products, and products that people want.

The ability of people to tap the equity in their homes when they face a financial crisis, that is a good innovation. The availability of more than one -- lots of kinds of mortgage to people in different kinds of circumstances.

There are a lot of reasons why a rational person might intelligently want an interest-only mortgage. That can be a useful instrument.

We have the ability to raise capital to finance development all over the planet. And the idea that...

(CROSSTALK)

... you say, well, let's give it to the poets, I mean, I'm all for the poets. But what we -- to be at the end of this period, it's like being in one of the railway crises of the middle 19th century and saying, eh, nothing real was accomplished. Something real was accomplished over the past 20 years.

(CROSSTALK)

SPITZER: (UNINTELLIGIBLE) very effectively to then beat it down.

All of us here -- I'll talk for myself. I don't want to speak for others. I am a devout capitalist. I believe in the creativity, the innovation, the conflict that emerges -- let me finish. The reality is that we have an economy right now that has tremendous innovative capacity, but also, over a 10-year period, has not created any net jobs. And the distribution of those proceeds is getting less and less equal. And our position vis-a-vis the rest of the world in terms of debtor-creditor situation, our world power -- 100 different metrics you could use -- we're on the losing end.

And therefore, we have to step back and say, how do we extend those benefits, and both continue them and make sure we create an environment where they can...

(CROSSTALK)

ZAKARIA: But do you worry that you're...

SPITZER: And that's where we are not...

(CROSSTALK)

FRUM: I'm not going to dispute with you on that. And it's true. I mean, not enough of this came through to the typical worker during the years from 2001 to 2007. That was a big problem.

And there a lot of things we can talk about to fix that, including getting control of health care costs, which has been the great burden on the incomes of middle income people.

But let us not crush the creativity. And let us not look for a financial solution to economic problems.

ZAKARIA: On that note, thank you all very much. We will be back right after this.