One small problem - deregulation didn't play a part in the collapse. It's the regulated institutions and the regulated parts of mixed organizations that failed.
Subprime mortages were a creation of regulation and were overvalued as US regulatory policy.
Regulation and tax policy encouraged US banks to hold more Fannie and Freddie stock than they would have otherwise, which guaranteed that they'd all take a hit at the same time.
The only "lack of regulation" was the US Congress protecting Fannie and Freddie. The active players here were almost all Dems. Most Repubs ignored the problem and a few got their teeth kicked in when they suggested that Fannie and Freddie should be regulated.
The Obama adminstration, starting with his Chief of staff, is full of folks who used to be Fannie or Freddie execs or board members.
That's not to let foreign regulators off the hook. Their banks and insurance companies are also failing.
In many cases, such as AIG, both US and foreign regulators were involved.
That's why the US is trying to get the unregulated institutions to bail out the regulated ones - they're the only ones left with significant assets.
Yes, I know what Fed Chief Bernake said about AIG's London operations. He was wrong about that, which shouldn't be much of a surprise given the accuracy of his predictions.
Again, I need to clarify. The various institutions of course never became absolutely unregulated but particular, symbolically important regulations were removed.
It is true that regulations like the distinction between savings banks and investment banks might not prevented similar banks maneuvers were the banks determined to engage in them.
However, it is actually important to keep in mind that a good deal of state's symbolic action toward private institutions are crucial for its limiting or not-limiting their behavior.
Throughout the financial industry, "Greenspanism", the idea that the market knows best, became the watchword of the regulators and the regulated, meaning that the regulators often failed to take action around worrisome trends. The Federal Reserve, for example, could have punctured the housing bubble at any time by saying loudly and forcefully "this is a bubble, you have to stop now". The results might not have been pretty then but they even uglier now...
Also
> Subprime mortgages were a creation of regulation and were overvalued as US regulatory policy.
I would love see documentation of this...
> Regulation and tax policy encouraged US banks to hold more Fannie and Freddie stock than they would have otherwise, which guaranteed that they'd all take a hit at the same time.
Actually, I'd see Fannie and Freddie as "poorly regulated but guarantee" institutions. Certainly the worst kind.
I certainly don't view the state as automatically good and the private sector as automatically bad. But not I also wouldn't see all state actions as good regulation or even regulation in any sense. The Post Office is owned by government and maybe regulated by the EPA. The US military, is controlled by the state but can tell the EPA to * itself and often does.
While that's commonly believed, the office of thrift supervision (the US agency that regulates banks - the name is historical), vehemently disagrees and says that the insurance regulators do as well.
I note that the chairman of the fed doesn't know what's regulated.
> The Federal Reserve, for example, could have punctured the housing bubble at any time by saying loudly and forcefully "this is a bubble, you have to stop now". The results might not have been pretty then but they even uglier now...
The fed isn't a regulator of financial institutions. Instead, it is supposed to handle monetary issues.
Note that crashing the market (via raising interest rates) wasn't politically possible, and regulators only do what is politically possible.
And, to the extent that bogus-type transactions were occurring, crashing the market wouldn't have stopped that. They'd have just gone down in proportion.
> The fed isn't a regulator of financial institutions. Instead, it is supposed to handle monetary issues.
Whatever its official duties, the Fed is considered a central bank. Centrals banks as a rule have been considered to have wide latitude for action on the economy in general, by policy makers, by their heads, by the financial community and by the public at large. Certainly, we can see the Fed taking wide action today.
Just consider - I'm sure you know the William McChesney Martin quote that the job of the Fed is "to take away the punch bowl just as the party gets going". This means looking at the economy as a whole.
> Note that crashing the market (via raising interest rates) wasn't politically possible, and regulators only do what is politically possible.
This is indeed true. Politicians may sink to the point that they only follow immediate popular options. CEOs may lie, cheap and steal due their pathological greed. Doctor may do a bad job due to habitual incompetence. In each case, it might indeed be true that nothing was possible at the time that it happened. One nonetheless must point out what these people ought to have done, whether they really could have done it or not.
I would note that the rise Greenspanism/"market fundamentalism" itself, starting in the 1990's, certainly made it much more politically difficult to stand against Wall Street's further partying in the 2000's.
> And, to the extent that bogus-type transactions were occurring, crashing the market wouldn't have stopped that. They'd have just gone down in proportion.
This is pure speculation on your part. I could equally speculate that they would have gone down as a proportion given that the total supply of loans was now down and honest deals are more desirable than dishonest deal. Further, actual bogus loans were only the final straw which broke the back of house price inflation. At wasn't the fundamental problem. We can see a huge number of ordinary loans which are coming undone at the moment (and without the massive intervention of the Fed, there would be even more).
No one in govt wanted the Fed to crash or slow down the housing market, so it's unclear how one can conclude that different regulations would have caused the Fed to do so.
> One nonetheless must point out what these people ought to have done, whether they really could have done it or not.
That depends on what said "pointing out" accomplishes. If it fuels bad policy/giving further power to the people who failed, it's a bad idea.
> I would note that the rise Greenspanism/"market fundamentalism" itself, starting in the 1990's, certainly made it much more politically difficult to stand against Wall Street's further partying in the 2000's.
If you're going to argue that the President and Congress weren't going to do anything, then it's unclear who you think would have done something.
I will note that McCain tried to get Fannie and Freddie under significant regulation during Bush's first term. He got a little support from some Repubs, no support from the rest, and kicked in the teeth by all the Dems who are currently screaming for more regulation and about how Bush screwed things up.
> I would love see documentation of this...
One of the major pieces of relevant legislation was Community Reinvestment Act, although the regulations and regulator actions were what gave it teeth.
Others have posted extensively on this, with links.
There's also Fannie and Freddie, which paid a huge role in creating a market.
> The US military, is controlled by the state but can tell the EPA to * itself and often does.
The US military may have more leeway than the post office, but I wouldn't say that it gets away with much. It spends a lot of time in court and if it's sane, avoids a lot of things that might end it up in court.
The professionals decided to accurately report the value of certain assets to investors, namely that said assets had lost a lot of value. The regulators objected....
http://www.washingtonpost.com/wp-dyn/content/article/2009/03...
I'm not claiming that the US failed for a surprising reason. I'm saying that its failures are like what anything the IMF has tried to deal with before.
One might argue that the stimulus packages will cause the sorts of problems that the IMF claims to handle....
I am less sure about your point that the US not failing for typical reasons. The finance industry has influence policy to excessive degree over the last ten years and the resulting deregulation played a part in the bubble and the collapse. It is hardly the only factor but it was a factor. It's different from Third World cronyism but the article has a point that it might be considered just a variation on theme.
So I'd challenge the statement that the US did not fail in a typical fashion. The thing that's A-typical is the US wasn't just rolling out wasteful production and unjustified debt but that it has been driving the world's economy over the last twenty years while doing this.
I'd agree that IMF doesn't have any track record of helping countries - it's just a bureaucracy which has more or less required belt tightening thus forcing countries to become export oriented.
The ironic thing is that as many nations have belt-tightened and become export oriented over the last twenty years, they came to rely on the debt-rolling US to buy their products. So the final failure of the US bubble may result in world where no one drives demand, where "beggar thy neighbor" through competative devalue is the only tool left to the exporting nations which every nation will be forced to be.
Neither the IMF nor the free market would be able to get us out of that one.