Counter Views of Regulation

David Norris: Who the hell are you guys?
Richardson: We...are the people that make sure things happen according to plan.
--The Adjustment Bureau

Caroline Baum includes some interesting info in an article about policy contributors to our current economic predicament. Democrats on the campaign trail such as Mr Bill are blaming 'deregulation.'

Yes, CB, I laughed too. It was during Bill Clinton's tenure that much of the deregulation that Mr Bill rails on occurred. Glass-Steagall was repealed in 1999 and replaced by the Financial Services Modernization Act, which was signed into law by Clinton in 1999. The law removed  G-S imposed 'walls' between banks, investment banks, and insurance companies, thereby facilitating huge increases in institutional size and leverage. Clinton also signed the Commodities Futures Modernization Act in 2000, which exempted over the counter derivatives from regulation.

While the irony of Democrats like Clinton fingering deregulation is humorous, blaming our economic malaise on deregulation is hollow rhetoric. CB argues deregulation only accelerated the problem. I would have used the word 'exacerbated.' At best, deregulation exacerbated the problem.

Ground zero of the 2008 credit collapse was the housing market. People buying houses that they couldn't afford, lenders dishing out credit to poor credit risks, and mortgage-backed securities that carved up and distributed risk like metastatic cancer throughout the financial system.

Baum correctly identifies government policy seeking to get more people into houses as a root cause. Indeed. Government sponsored entities (GSEs) Fannie Mae and Freddie Mac were born out of FDRs New Deal fantasies that more Americans should be able to 'own' a house. The GSEs became the primary vehicle for expressing this policy by forcing mortgage rates lower than free market rates. Supporters, primarily Democrats, defended Fannie and Freddie thru the mid 2000s even when audits suggested dangerous leverage.

Reflecting on my personal situation on a college campus, I have encountered few students who are aware of counter views of regulation like the ones laced in Baum's article or in this piece. Yet, these counterviews are difficult to disprove out of hand, suggesting their possible validity. As such, regulation should be viewed as a classic classroom debate topic.

Why is critical thinking about regulation so low--particularly at the collegiate level where lively debate is supposed to occur?