Did Deregulation Cause the Wall Street Crisis?

Conn Carroll / September 23, 2008

Anyone who tries to explain the Wall Street crisis in a single sound-bite is foolish…or worse. But House Democratic Leaders have found a culprit they can agree on: deregulation.

“This is the fruit of decades of ‘leave the market alone, don’t regulate it. It will take care of itself,” Says House Banking Committee Chairman Barney Frank. His solution? “Clearly we’ve got to get some regulation here.”

“The Bush Administration’s eight long years of failed deregulation policies” is the problem, declares House Speaker Nancy Pelosi.

“A stark failure of the economy and this administration’s laissez faire, take the referee off the field, let anyone do whatever they want to do and everything will be fine,” adds House Democratic Leader Steny Hoyer.

The problem with the Democrats’ “deregulation did it” meme is that it didn’t happen – deregulation that is.

The most significant financial regulatory action in the Bush Administration was Sarbanes-Oxley (Sarbox), a law significantly increasing regulation of the accounting and securities businesses. It spawned twenty – count-em – twenty new rulemakings at the Securities and Exchange Commission, and created a whole new regulatory organ, the Public Company Accounting Oversight Board (PCAOB).

If that is the “deregulation” House Leaders want to reverse, I’m with them. Describing what happened during the Bush Administration as “deregulation” just doesn’t square with the facts.

Bad choices by government have contributed to the current crisis, but calls to “get some regulation here,” neither illuminate those mistakes nor suggest what choices may be better. (more…)