Is this a case of having your cake and eating it too? Or avoiding throwing the baby out with the bathwater?

Out of a concern for the increased volatility in financial markets, the US and other governments are making attempts at controlling computerized, high speed trading.  The arguments against such regulation center on the efficiency gain that such high-speed transactions are supposed to generate.  But it's not clear how much gain is actually generated over the usual tatonnement process of financial markets, especially if one adds in the greater risk of financial market manipulations that such transactions create.  Thus, such regulation would get rid of the bad ("bathwater") while preserving the good that financial markets do ("saving the baby").

However, such regulation is aimed at treating symptoms without getting at fundamental causes.  There is a controversial argument (see my last post) that the fundamental cause of such speculation is the presence of fractional-reserve banking.  As speculation occurs, so the argument would go, it creates profits that allow the banking system to create new money that fuels further speculation.  Eventually bubble pops and the speculation runs the other way with banks destroying money.  If this argument is correct, it suggests that the regulations being considered are simply band-aids in an attempt to reduce volatility ("having one's cake") while keeping the fractional-reserve banking system ("and eating it too").