The Way We Live Now: Diminished Returns

Claims that deregulation caused the financial crisis miss the mark, according to economic historian Niall Ferguson. Deregulation has been going on since the 1980s and led to growth as well as decline. And regulation failed to prevent financial collapses in the 1970s. Moreover, regulation, as evidenced by the Basel I and II international accords on bank standards, actually allowed leverage to get as high as 50-to-1 in some cases – excessive leverage being one of the factors that contributed to the crisis. But bad regulation is not the only culprit. Poor enforcement of regulations in one country, especially if it happens to be the world’s largest market, ends up affecting the whole world. For example, the Federal Reserve, in setting monetary policy in the US, was only concerned with consumer prices and not asset prices, which were ballooning while interest rates were already low. But perhaps more insidious than ascribing blame to deregulation, is that using deregulation as the scapegoat effectively passes the buck without getting at the root cause: who regulates the regulators? – YaleGlobal