There is no doubt a fair amount of fog around here and much of it emanates from your remarks.
“Or we could research and understand rescinding Glass Stegall in 1999 was cause of this mess and reinstate it, and force banks to operate in a regulated environment as they did in the 1940′-90s.”
So Glass Stegall was to blame? Because we allowed corporate combinations of investment and commercial banks we suffered the financial meltdown of 2008? You don’t believe it had anything to do with government policy to provide relaxed underwriting standards to home-owner wannabes by providing no money down mortgages, unleashing new demand for private home ownership resulting in real estate price increases, and then packaging and selling those mortgages as AAA rated securities that could be held in bank portfolios with only 3 and 1/3% capital requirements?
Government policy and regulatory malfeasance produced a market bubble that self corrected and in its wake, left mountains of bad paper that is still on the books of Fannie and Freddie and that we have yet to see the full extent of damage rendered. That, Alex is what the regulators permitted and in the case of issuing those poorly conceived loans in the first place, mandated as the lenders were required to lend money to politically favored groups. Remind me again what is the basis for your faith in regulators?
And speaking of regulators, how is it that Bernie Madoff’s ponzi scheme operation was brought to the attention of the regulators on multiple occasions over periods of years, and yet somehow failed to diagnose correctly what was actually going on there.
Financial markets are among and have been among the most heavily regulated industries there are. To suggest that banks were operating in an unregulated market post repeal of Glass Stegall is breath-takingly ignorant.
The real problem is that when politics intrudes into the prudent decision making process of the financial markets by requiring outcomes (ie loans to favored constituents) over rationale prudential private decisions, then you end up with market distortions that reality ultimately corrects. Faith in regulation presumes a misplaced and historically ignorant trust in the regulatory overlords to be impervious to political influence, righteous in the conduct of their power, and clairvoyant in their ability to foresee the consequences of their decisions. None of those conditions exist in the real world so perhaps you need to rethink your affection for them.
