The WSJ says that the ill effects of deregulation, a subject the Dems use to blame Republicans for the current financial crisis, is nothing but a political fairy tale:
As for the sins of “deregulation” more broadly, this is a political fairy tale. The least regulated of our financial institutions — hedge funds — have posed the least systemic risks in the current panic. The big investment banks that got into the most trouble could have made the same mortgage investments before 1999 as they did afterwards. One of their problems was that Lehman Brothers and Bear Stearns weren’t diversified enough. They prospered for years through direct lending and high leverage via the likes of asset-backed securities without accepting commercial deposits. But when the panic hit, this meant they lacked an adequate capital cushion to absorb losses.
Even Bill Clinton says the repeal of Glass-Steagal has nothing to do with the current crisis. I am happy to continue blaming the Dems for blocking reforms and regulation of Fannie and Freddie, two institutions I think are much more causally related to our problems.
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