Independent experts such as former SEC Chief Accountant Lynn Turner say that to understand the current crisis, it's important to examine the full range of congressional actions that led to it, including the failure to heed warnings about Fannie and Freddie and the failure to oversee investment in the tangle of mortgage-backed securities, derivatives and swaps.
He also cites congressional and executive branch failure to respond to warnings about credit rating firms that gave unjustified high grades to risky mortgage-backed securities.
The role that deregulation played in the calamity is becoming the subject of heated debate. Conservatives argue the problems arose not from the fundamental decision to decrease the role of government but a failure of government -- including Congress -- to provide basic oversight and supervision.
Authors of a new book argue that it was reductions in the role of government advocated by both parties that played a major role in the financial meltdown.
"This is part of a pattern that emerged from a long period of reckless deregulation," said Lawrence Jacobs, a University of Minnesota political scientist and co-author of "The Private Abuse of the Public Interest," which examines the effect of a "deregulation fever" that gripped Democrats and Republicans near the end of the 1960s and persisted.
"There was an unquestioned assumption over these decades that if government stays out of the picture, the markets will be more dynamic and the outcome will be better for the country as a whole," Jacobs said in an interview.
That proved to be the case in a few instances, such as the deregulation of commercial airlines. But, he added, "what started as a reasoned and nuanced discussion of how to nudge the economy forward turned into a kind of radical utopian stampede in which leaders of both parties said, 'Government was the problem.' "
Republican Shays and other deregulation advocates counter that the problem lies not with deregulation but with the oversight that was always required of Congress and federal agencies.
Shays, for example, defends his vote for the Financial Modernization Act. That law stripped the Depression-era regulation of banks and allowed them to engage in investment activities.
But he also has been critical of the Treasury Department and other agencies for not overseeing what followed.
North Dakota's Dorgan, a Democrat, takes a harsher view. He faults the decision to deregulate banks that occurred after passage of the modernization act.
"In 1999, when the bill was debated, I warned, 'This bill will also raise the likelihood of future massive taxpayer bailouts.' . . . I also think we will, in 10 years time, look back and say, 'We forgot the lessons of the past,' " Dorgan said, adding, "I take no satisfaction that I was right."
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tom.hamburger@latimes.com
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Asian stocks plunge
Asian stock markets fell this morning as investors took scant comfort from Washington's passage of a $700-billion bank bailout and focused instead on deepening financial turmoil in Europe that threatens to slow global growth.
Japan's benchmark Nikkei 225 average was down 4.4% , while Hong Kong's Hang Seng index slid 3.7%. Markets in mainland China, Australia, South Korea, Singapore and Thailand also fell sharply. Indonesia's key index plunged more than 5%.
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From the Associated Press
