Great opinion piece in the Wall Street Journal today on how too much government intervention was also a major contributing factor to the current financial crisis. Excerpt:
"Once upon a time, in the land that FDR built, there was the rule of "regulation" and all was right on Wall and Main Streets. Wise 27-year-old bank examiners looked down upon the banks and saw that they were sound. America's Hobbits lived happily in homes financed by 30-year-mortgages that never left their local banker's balance sheet, and nary a crisis did we have.
Then, lo, came the evil Reagan marching from Mordor with his horde of Orcs, short for "market fundamentalists." Reagan's apprentice, Gramm of Texas and later of McCain, unleashed the scourge of "deregulation," and thus were "greed," short-selling, securitization, McMansions, liar loans and other horrors loosed upon the world of men.
Now, however, comes Obama of Illinois, Schumer of New York and others in the fellowship of the Beltway to slay the Orcs and restore the rule of the regulator. So once more will the Hobbits be able to sleep peacefully in the shire."
In summary, the WSJ believes that the Federal Reserve kept interest rates to low (creating cheap money); Fannie & Freddie made mortgage financing too cheap; a credit rating oligopoly with state and Federal backing was given too big a role; the Bear Stearns rescue created moral hazard; and that the Community Reinvestment Act (which compels US banks to make loans to poor borrowers) created bad practice. It points out that the least regulated firms (hedge funds, private equity funds) have actually faired far better than the highly regulated ones (banks, brokers).
This of course does not absolve bankers of any blame (they made some huge mistakes), but it does highlight that too much government involvement is a bad thing. Now, as the US government lays the foundations of the biggest bailout in history, I can't help thinking its eventually gonna make things worse.