Sebastian Mallaby summarizes the problems with blaming deregulation for the current financial mess.
The key financiers in this game…were by no means unregulated. U.S. investment banks, regulated by the Securities and Exchange Commission, bought piles of toxic waste. U.S. commercial banks, regulated by several agencies, including the Fed, also devoured large quantities. European banks, which faced a different and supposedly more up-to-date supervisory scheme, turn out to have been just as rash. By contrast, lightly regulated hedge funds resisted buying toxic waste for the most part — though they are now vulnerable to the broader credit crunch because they operate with borrowed money.If that doesn’t convince you that deregulation is the wrong scapegoat, consider this: The appetite for toxic mortgages was fueled by Fannie Mae and Freddie Mac, the super-regulated housing finance companies.
Mallaby adds that the next president will have to defend the market “against the inevitable backlash that follows this crisis,” as Roy Cordato has done in a different context.
The whole thing is worth reading.
