You mean like in the late 80′s? Oh, never mind…

Lack of regulations may have been part of the problem, but in the past, banks didn’t have to be told by lawmakers to avoid making bad loans. The market did a good job of curbing such behavior.

I suspect most of the problem was that certain institutions (Feddie Mae/Fannie Mac) behaved as if they could get Uncle Sam to make up the difference with any bad loans that cropped up. That, plus the regulatory/non-regulatory pressures with respect to minorities, led to the creation of no-down/no-documentation/no-credit loans. Once the easy loans were available, many people wanted them (because they were cheaper than standard loans), leading to the credit bubble.

Of course, there’s another specific regulation that made things worse.

Imagine a business in which the owner has to mark the inventory value of all of his stock down because his competitor had a fire-sale, and offered some real bargains.

Congress told all financial institutions to do that with the “Mark-to-market” rule. By itself, it is not responsible for much. In collusion with the bursting of the credit bubble, it turns marginal banks into shaky/insolvent banks rapidly.

I think I’ll take back my statement about us possibly agreeing. Tgirsh, I don’t agree that de-regulation is at fault. At most, it shares fault with specific regulations that were enacted later. At least, it was almost-inconsequential.

How, exactly?

1. Fannie and Freddie, or
2. Democrats

…off the hook?

The deregulation of the late 1990′s passed by a wide bipartisan margin, and was signed into law by Clinton (which is probably why he’s denying its importance now — wouldn’t want to tarnish the legacy, doncha know…). The hands of the Democrats are far from clean here.

And sorry, but while fixing Fannie and Freddie may have lessened the impact here, it would at best have delayed the problem, and little more.

In the WSJ, Bill Clinton is quoted as saying that deregulation didn’t make it any easier for Investment Banks to get themselves into trouble.

Story here.

Except that John McCain (and G.W. Bush) tried to tighten the regulations on a piece of the puzzle (Fannie Mae/Freddie Mac), and powerful CongressCritters told them to shut up.

It may or may not have been a particular party; it was definitely CongressCritters who were good friends with the powerful officials at Fannie Mae and Freddie Mac.

The rest of the banking system exacerbated the problem. The portion of America that thinks that debt is a way to get something for nothing exacerbated the problem.

Want to blame the whole thing on specific de-regulation, when there are so many other pieces to this puzzle?

Keep pushin’, tgirsh — you will turn me from a Libertarian to a Republican if you keep it up!

Further, as Manish and others have pointed out elsewhere, while the government did in fact encourage subprime lending to expand home ownership, they certainly didn’t mandate the types of “Countrywide” style loans, with low “teaser” rates but exorbitant ARMs later, that are at the core of the mortgage crisis we’ve been facing for the past year. It’s also worth noting, as Manish does, that CRA type lending has little to do with it. Most of the problem involved middle-class and upper-middle-class people trying to live beyond their means and overextending for that four bedroom dream house in the affluent suburbs (hoping that the value would go up and they could refinance before the teaser expired), and/or taking out home equity loans to pay for that vacation or Harley or whatever, not poor minorities buying their first house.

Actually itis a little more complicated then that. There are several good youTube video going around that do a pretty good job.

See i thought that the cheap mortgages were pushed because of CRA and the likes of ACORN

http://en.wikipedia.org/wiki/Community_Reinvestment_Act