It Was the Deregulation, Stupid

Rod Dreher on the role de-regulation and non-regulation played in the current meltdown. That anyone can try to deny this was a major factor speaks of their living in a dream reality of their own construction.


  1. Let's say I were to start a brokerage and comply with all regulations, obvious or otherwise. Would I walk away with the impression that that the financial sector is lightly regulated?

  2. Let's say I was Silas Barta, and I showed up in the Willingdone Museyroomn and asked a question completely beside the point. Would I walk away with the impression I had won should Gene Callahan dismiss my distraction?

  3. What's beside the point? You're bringing up the usual argument about how bad "deregulation" was. I'm asking you, as someone who actually worked in finance, exactly how law-of-the-jungle it is there.

    Because it really gets irritating when these tales of an unregulated Wall Street coincide with a sector that has by far the biggest regulatory barriers to entry. I only live in one of those worlds.

  4. Ok, so you feel it's impossible that:
    1) There could be LOTS and LOTS of regulation, most of it serving as barriers to entry for the little guy, AND
    2) An absence of regulation on the things that really ought to have been regulated, like banks getting too big to fail.

    Inconceivable, huh?

  5. Gene: I think you're absolutely correct that there's both too much regulation and too little* regulation at the same time. The lesson of that should be clear: any attempts to fix the system by increasing the power of regulatory agencies are doomed. If they were captured before, why would they be independent in the future, ceteris paribus? Why would regulators suddenly begin to work systematically to prevent misbehavior instead of when it's politically convenient?

    I could give the same criticism to libertarians who think attempts by conservative/libertarian think tanks and investors to fund Republican candidates will bring libertopia. Sure, they will mostly deregulate offshore drilling and give tax breaks to multinational corporations, but maybe they will ultimately be consistent enough to undermine the regulatory and tax codes entirely! When that day comes, I'm sure the lion and the lamb will begin to pick flowers and make pretty garlands together.

    Maybe some kind of campaign finance reform would bring temporary relief to the mess caused by the love affair between government and finance, in which case regulation might conceivably work a little better. But being the pie-in-the-sky quasi-anarchist that I am, I think grassroots organizing and disbanding centralized politics is a lot more sustainable, if harder, approach. Nothing good in life comes easily, though.

    *If any libertarian should take objection to that, by "too little" I mean that if property rights, courts, private rating agencies or any libertarian alternatives to gov't regulation aren't available, the financial regulators should at least do what they're supposed to do - with the least amount of superfluous intervention, of course. Just a utilitarian instinct of mine.

  6. I'm aware of the difference between a change an a level, yes. Can you understand why it might give the wrong impression when you suggest that the financial sector really was "deregulated" in a meaningful sense? Generally, "deregulation" isn't taken to mean "reduction of regulations to the extremely stringent level the US financial sector currently faces", and I would hate to learn that you were deliberately giving an impression of a lightly regulated sector ... that would be kinda misleading.

  7. Gene wrote: "too big to fail."

    And that is where we part ways.

  8. Anonymous12:10 AM

    Well, I'm not Gene, but If I may reply to watoosh:

    We may legitimately hope that effective regulations be put in place, because in the past (we believe), just such regulations were in place.

    Dismantling, and circumventing such regulations has been a multi-decade process effectively led by committed ideologues, and legitimated by elite scholarship. On both of these fronts, I believe a tide is turning.

  9. This definitely shows the danger of deregulation of an industry in such a way that companies are shielded from risk. If there were no banking regulations at all, including no FDIC, do you honestly think banks would make bad loans on a massive scale, across the industry? The main reason there can be a meltdown of the "banking system" is because the government, through its regulation of finance (as well as the fact that it creates money through the Fed), turns a bunch of independent companies into a "system" by corrupting them in similar wasys and then shielding them from consequences. You don't hear about people talking about the pending collapse of the "computer manufacturers' system" for example.

  10. Watoosh, I don't think there is any easy way out of our current crisis. The Romans tried all sorts of solutions between 100 BCE and 400 CE, but the fact was their civilization was done. As, I think, is ours.

  11. Anonymous4:27 AM

    Professor Callahan, you must be among the five or ten people who read or subscribe to the super-obscure loss-maker that is called The American Conservative.

    Just joking.

    Anyway, sorry for making a post besides the topic, but I am curious that since you link to quite a few of their columns, are you donating to them? They might be out of business in a few years, so I wonder how the few readers of this publication might still be supporting it.

    (Of course, given your fatalism about American civilization, you may have even less hope for the magazine!)

  12. Anonymous4:33 AM

    By the way, on topic and on the repeal of Glass Steagall, I am trying to understand whether the problem was that -

    a) commercial banks entered investment banking business and opened small investment banking subsidiaries.

    b) investment banks entered commercial banking business and opened small commercial banking subsidiaries.

    c) All of the above.

    As far as I can see it, only a) could be judged to be a problem, but only b) was what actually took place. Citibank, one of the worst affected commercial banks, was and still is a largely commercial banking company only, before and after the crisis. If Citibank was under-capitalized and could not bear losses on commercial banking loans, one wonders how it could be blamed on investment banking.

    On the other hand, investment banks such as Goldman Sachs and JP Morgan do have commercial banking segments, but they came out just fine out of the crisis.

  13. No, Prateek, I don't donate anything to TAC aside from the occasional book review. But I do love Daniel Larison's and Rod Dreher's blogs!

  14. "That anyone can try to deny this was a major factor speaks of their living in a dream reality of their own construction."

    Imagine Gene's reaction had someone else penned that gem.

    Apparently part of shedding ideological commitments means condemning all who dare to disagree with your interpretations (of extremely complex events) dishonest by default. It couldn't be that people are earnestly mistaken, it couldn't be that they're simply ignorant of relevant information, and you certainly couldn't be mistaken yourself! Presto: Anyone who disagrees with your interpretation has created a dream world to protect their priors.

    Life after ideology must be so refreshing. Hopefully we'll all make it there one day. I had no idea smugly dismissing others was actually easier after making the jump. I had always figured the opposite. :/

  15. John D, you are already excellent at smug dismissal, so you have no need to wait for any change!


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