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Wednesday, April 28, 2010

 
Tragical History Tour

Veronique de Rugy dispels some myths about the economic crisis. Finance industry regulation was on the rise, not the decline, and one bit of actual deregulation that actually did take place is irrelevant to the situation:

While Gramm-Leach-Bliley did facilitate a number of mergers and the general consolidation of the financial-services industry, it did not eliminate restrictions on traditional depository banks’ securities activities. In any case, it was investment banks, such as Lehman Brothers, that were at the center of the crisis, and they would have been able to make the same bad investments if Gramm-Leach-Bliley had never been passed.

The real culprits? An explosion of high-risk lending. ("Stricter regulation of credit-default swaps wasn’t going to make those subprime mortgages any less likely to go bad.") The Fed’s "cheap-money policy."And this:

Allowing financial institutions such as Freddie Mac, Fannie Mae, and investment banks to maintain significantly smaller capital reserves than commercial banks, while implicitly guaranteeing their obligations

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