Peter Wallison destroys the myth that deregulation caused this mess (via Bloomberg):
Sept. 30 (Bloomberg) — In the debate on Sept. 26, Democratic presidential nominee Barack Obama argued that the current crisis in the financial markets is the result of Republican deregulation.
The advertising from his campaign has been saying the same thing, and this claim is becoming a fixed element in the talking points of Democratic candidates this year.
The credibility of the charge depends on ignoring several important facts:
— There has been a great deal of deregulation in our economy over the last 30 years, but none of it has been in the financial sector or has had anything to do with the current crisis. Almost all financial legislation, such as the Federal Deposit Insurance Corp. Improvement Act of 1991, adopted after the savings and loan collapse in the late 1980s, significantly tightened the regulation of banks.
— The repeal of portions of the Glass-Steagall Act in 1999 — often cited by people who know nothing about that law — has no relevance whatsoever to the financial crisis, with one major exception: it permitted banks to be affiliated with firms that underwrite securities, and thus allowed Bank of America Corp. to acquire Merrill Lynch & Co. and JPMorgan Chase & Co. to buy Bear Stearns Cos. Both transactions saved the government the costs of a rescue and spared the market substantial additional turmoil.
As he points out, a lot of good in the economy would not have happened without deregulation:
It is correct to say that there has been significant deregulation in the U.S. over the last 30 years, most of it under Republican auspices. But this deregulation — in long-distance telephone rates, air fares, securities-brokerage commissions, and trucking, to name just a few sectors of the economy where it occurred — has produced substantial competition and innovation, driving down consumer costs and producing vast improvements and efficiencies in our economy.
The Internet, for example, wouldn’t have been economically possible without the deregulation of data-transfer rates. Amazon.com Inc., one of the most popular Internet vendors, wouldn’t have been viable without trucking deregulation.
The rest of the article is pretty partisan as Wallison makes the case that Republicans were in favor of regulating Fannie/Freddie more harshly than Democrats. That is mostly true but plenty of Republicans got Fannie/Freddie campaign cash too.
Obama and the Democrats are trying to blame this on free market capitalism though and that is just a misreading of the facts. My fear is that they will make the sale and we will face an economy burdened by over-regulation. There is no regulation that I know of which has ever created more economic growth.