DjDiverDan
Contributor
You need to double check your history there. The claims of a systemic failure were, like the reports of Mark Twain's death, "greatly exaggerated." Now the failure to regulate the issuance of credit default swaps was a real problem, but it was NOT, as you seem to claim, the result of deregulation. In fact, credit default swaps and other debt derivative securities never were regulated prior to the 2008 credit collapse, but not for want of trying. In fact, President Bush's nominee as Chairman of the Commodities Futures Trading Commission (the CFTC, the Regulatory Agency with jurisdiction over derivative securities) issued proposed regulations which would have required public disclosure by issuers of CDSs and required the retention of loss reserves on such CDSs by issuers (i.e., treating them like insurance). But those regulations were killed in the Senate, and NOT by the Republicans. In fact, it was a gang of Democratic Senators, led by Charles Schumer, with help from Christopher Dodd, Dick Durbin, and then-Senator Barack Obama who led the charge to kill these regulations. And the experts which they relied upon to reach the conclusion that the regulations were "unnecessary and counterproductive" included Ben Bernanke and Timothy Geithner. You really ought to read the record of the hearings in the Senate on that issue; it's highly enlightening, and you'll learn things that you'll NEVER hear from CNN or the mainstream media. As to the real causes of that collapse, it was not so much a result of deregulation as it was a case of counterproductive political intervention. Until 2004, both Fannie Mae and Freddie Mac refused to purchase or securitize subprime mortgages. They did not meet the underwriting standards of the GSEs. But this bothered folks like Barney Frank and Christopher Dodd, as well as the entire Black Congressional Caucus. Amendments to the Community Reinvestment Act were pushed through, which compelled Banks to make more subprime loans, and Barney Frank (a Democratic Representative from Massachusetts, for those who don't know), Christopher Dodd, and others heavily lobbied the GSEs, Freddie Mac and Fannie Mae, to relax underwriting standards to allow the purchase and securitization of subprime mortgages. Between 2004 and 2008, their share of MBSs (Mortgage Backed Securities) backed by subprime mortgages, most written with down payments of 5% or less (no down payment loans were common), went from nothing to more than 80% of that market. Without the huge growth in the origination of subprime mortgages driven by political interference in the market, the credit collapse of 2008 would have been little more than a small shiver.
