Intel Corp (INTC)

[spokeshave]

But regardless, to ignore the contributions of various deregulations to the recession is delusional.

While it is convenient to toe the party line on the issue and state that deregulation is the root of all evil, it is not exactly correct. The current economic mess is the direct result of not only deregulation, but also over-regulation and stupid legislation.

The deregulation of Credit Default Swaps by the Clinton administration allowed these instruments to be freely traded by virtually anyone. This by itself was not a big deal as long as the underlying assets for these instruments were sound, i.e. real estate. However, stupid legislation in the form of the Community Reinvestment Act and Amendments (the result of several administrations) not only permitted, but encouraged and even required banks to make sub-prime mortgages to people who could not afford them. Even this, by itself was not a big deal since rising property prices gave lenders some assurance that their investments were sound. Finally, the over-regulation of Sarbanes Oxley (ironically, by the Bush administration), in an odd case of unintended consequences, requires "mark-to-market" accounting for Credit Default Swaps and other derivative instruments as well as limits on leverage for banks and lending institutions.

None of these taken by themselves were responsible for the financial crisis. However, when ther housing bubble burst, the market for Credit Default Swaps dried up almost overnight. Since SarbOx requires mark-to-market accounting, regardless of the intrinsic value of the instruments, assets with intrinsic value went to essentially zero book value almost overnight. Because of leverage limits, the liquidity market dried up almost overnight as well. This caused worldwide panic, and here we are...

So, it is much more complicated that "deregulation is evil". Bad regulation and bad legislation is just as evil.