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No, Deregulation Did Not Cause the Recession
In the wake of the financial crisis and the subsequent recession, many have tried to pin the blame on the boogieman of Deregulation as the cause. Now I've explained many times before why this is wrong because the boom-bust cycle is caused by the manipulation of money and credit by the Federal Reserve. Here I will show why deregulation was not the cause for other reasons.
The problem with the notion that deregulation caused the recession is that it assumes that the state is capable of figuring out what exactly to regulate. This assumption lacks support because there is no evidence that anyone in the government knew that a recession was even going to happen. Where are all the reports by government agencies claiming that a bust is sure to come and that, due to lack of proper regulatory power, they were powerless to stop it? How can government regulators prevent a recession they couldn't see coming? It's easy now to look back and claim if they had prohibited derivatives or prohibited the kinds of bank mergers allowed by the partial repeal of Glass-Steagal that everything would have been fine, but where were the people claiming this would be a problem ten years ago?
I cannot stress this enough. Not only were they blind to the coming recession, but they were adamantly positive in their outlook. The Treasury Secretary in March of 2008 said that "Our banks are strong. They're going to be strong for many, many years." The Chairman of the Federal Reserve said in May, 2007 that “We do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system.” Even mere weeks before the collapse both these men assured us that the economy was sound and that maybe Fannie and Freddie might need a little help, but otherwise, the fundamentals were sound. These are the top regulators of the financial and banking systems. Bernanke was named Time Man of the Year and re-appointed by Barack Obama, yet he failed to see or prevent the collapse.
To me it seems the height of naivete to think that these regulators, given more power, could have prevented anything--they didn't think anything was wrong! How could they know which regulations were needed when they never saw what the problems were?
One more thing. When I said that no one in the government knew that a recession was coming I was wrong. There was one man who knew and his name is Ron Paul. From September 6, 2001: