@JohnAskew: No, government failed because the citizens are no longer it's customers, but it's producers. Producers of tax money. They get that money by force, not by the free will of the people, if they come up short they'll just increase the productivity of the producers, either through tax or inflation.
The people willing to give government money free of force, want something in return. Therefore these people have more say in what happens in politics then the citizens that pay tax.
The failure is that government or it's officials take this donated money to persue their own greed (maybe some position of power). When the candidate is in the position, it's time for him to pay off his/her debt. Not to society, but to the people who put him there.
If you opt for more regulation, you can bet your hiney that it's not going to hurt the wealthy that put your man into power, it's going to hurt the tax payer.
So, how can one rise to power democratically without the strings attached when funded by special interest groups? That would be the solution,. Not more regulation and taxes.
I am not as jaded or cynical about government to view myself as merely a tax revenue production point. I am not a hostage. Government serves me well and where it does not, most often it is because of the special interests you identified. In the USA government, %99 of bribery (a.k.a. lobbying) is done in Washington D.C. by special interest groups. You are very right and this is the pollution that wrecks the machine. You are very right about that and it must be changed.
I reject your argument against regulation carte blanche. Libor was never regulated. It was assumed that bankers would simply report lending rates honestly. But this was hubris. Those who could loot did. We can learn from this. We should start with regulation and watchdogs, we should anticipate that some are going to cut in line, drive over the speed limit, in a word cheat. That is human nature. It is why communism fails. It is why capitalism fails. Human nature is not honorable and we cannot allow power to be assigned and go unwatched.
Humans strive to be honorable, but that is not what is found in practice over history. For this reason alone, the propoganda of less regulation is thoughless at best. "Smaller Government, Less Regulation" is sounding to me more like a cheer for a football team than an honest conversation.
If we were to raise taxes on the wealthy only, then that is how we can hurt the tax payer painlessly.