Deregulation Not to Blame for Financial Woes

Good column over at from Peter J. Wallison, Arthur F. Burns Fellow in Financial Policy Studies at the American Enterprise Institute.

— The subprime and other junk mortgages that Fannie and Freddie bought — and the market in these mortgages that their buying spawned — are the underlying cause of the financial crisis. These are the mortgages that the Treasury Department is asking for congressional authority to buy. If the Democrats had allowed the Fannie and Freddie reform legislation to become law in 2005, the entire financial crisis might have been avoided.

Policies that center on deregulation are probably hard for the voting public to grasp, and that has allowed Democratic candidates to spread the idea that there is a connection between deregulation and the current crisis. But an Obama victory, based in part on the claim that deregulation has caused the financial crisis, will create a mandate for new regulation where it isn’t necessary and will do harm to our economy.

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