It’s a tough time for financial services firms to hold their ground in favor of free market economics. Given their lack of popularity and their IV drip of government funds, most money companies don’t have any leeway to resist government overreach.

Which is why it’s refreshing to see Chuck Schwab make a run at America’s top legal bully, New York Attorney General Andrew Cuomo. Cuomo is following Eliot Spitzer’s path to the New York governor’s office: arm-twisting big name, deep pocketed financial companies into settlements under threat of litigation. What Spitzer trailblazed, Cuomo has perfected in the age of Wall Street ignominy.

But Schwab isn’t playing ball. Rather than settle with Cuomo’s office over the issue of whether brokers should be responsible for their customers’ purchases of Auction Rate Securities, Schwab is letting Cuomo take his company to court. And he’s battling Cuomo’s media preening with a public strategy of his own.

Late last week Schwab penned an op-ed in the Wall Street Journal that laid out the case for why Cuomo’s vision of financial regulation is inimical to the proper functioning of the market and to the basic American understanding of risk and reward:

The implication of [Cuomo’s] lawsuit is that firms like ours should have known that the market would fail. Should we also have known that Lehman Brothers or Bear Stearns were going to go under and compensate clients who bought their equity or debt? Should we have been able to predict which financial institutions would be the beneficiaries of government bailouts and which would not? I think it’s fair to say we have all been surprised by many events this past year.

The issue at stake here is whether independent investors should be allowed the freedom to choose what they are allowed to buy, sell or hold. Or should the government try to enforce a guarantee against market risk through regulation or lawsuits like the attorney general has brought against us?

Once upon a time, the answer would have been clear. These days, people even willing to ask the question are a rare breed. Kudos to Mr. Schwab for going out on a limb. Let’s hope his customers appreciate the risk.