How do you deal with capital flows when they are so prone to boom-and-bust cycles and generate (roughly once a decade) financial crashes with painful economic consequences? The mainstream answer is that you do not regulate capital flows directly--through capital controls such as financial transactions taxes or deposit requirements--but you rely instead on prudential regulation of financial intermediaries. The best way to avoid crashes, this argument goes, is not to "throw sand in the wheels of international finance" (as Tobin famously put it), but to make sure that intermediaries do not take excessive risks.
This argument is just about as convincing as the one gun control opponents use when they say "guns do not kill people, people kill people." What we are supposed to conclude from this is that the appropriate way to deal with guns is to regulate the behavior of people who own them--and not to control the circulation of guns directly. But any sane person understands that because we cannot observe and control behavior perfectly, a sensible regulatory framework must use both margins simultaneously.
And it is the same with capital flows. We bemoan the shortcomings of prudential regulation after each financial crash. That should teach us that policy needs to extend beyond prudential regulation to a wider set of instruments.