T Nation

Deregulation: the Cause of the Financial Crisis


Inspired my a debate I'm having on another site.

So, is deregulation (specifically deregulation of the banks) responsible for the economy tanking?


IMO it's not the 'smoking gun' but it's one of a series of factors that created a 'perfect storm'.


What exactly was deregulated?


The Fed Gov (specifically the community reinvestment act) is the reason that there was a real estate bubble, The Fed Gov (congress) forced the subprime lending standards on to other banks that wanted nothing to do with it and The Fed Gov (Fannie/Freddie/FHA) were buying metric tons of garbage loans. Most mortgage companies never actually kept their subprime paper they sold it in packages to Fannie every single month.

Do some research http://www.youtube.com/watch?v=OPd_J0RX1p0


... Who are you talking to?


Some insight into the direction of this debate I've been having; My opponent argues that the Gramm-Leach-Bliley Act deregulated the banks, which (helped) ruin the economy, and that the era of deregulation (starting in 1970) set the stage for all of this.

In argued that, given the largest jump in government regulation in U.S. history occurred in the 70's, calling it the beginning of the "era of deregulation" is pretty fucking stupid and that the GLB, by all intents and purposes, actually regulated the banking industry MORE since it took us from a situation where NO ONE could approve of mergers between commercial banks and investment banks, to ONLY allowing the government to approve of such mergers, thereby expanding the government influence over the market, not diminishing it.

Basically, He's saying it's deregulation because a law was overturned, I'm saying it was further regulation because that law was only overturned to make way for a law that gave the government further control over the banking industry.

Agree? disagree?


I think you will find the lenders were heavily involved in crafting the CRA and were more than happy to collect the fees from loan generation after the re-purchase conditions were included in the law. It's just redistribution via other means. Nobody expected those loans to repaid from the beginning.