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The housing and financial crisis currently wreaking havoc in the U.S. is now causing folks to reconsider the merits of deregulation.
In testimony (before the House Financial Services Committee), Securities and Exchange Commission Chairman Christopher Cox said the SEC should be given more power to regulate the parent companies of investment banks, and New York Fed President Timothy Geithner described the need for policy makers to be particularly vigilant, noting the entire regulatory structure should be reevaluated.
Already, the Federal Reserve has dialed up its scrutiny of Wall Street investment banks, placing officials inside the giant firms and weighing in on their capital requirements, after taking the unusual step of offering tens of billions of dollars in emergency loans. .gif)
At the same time, state utility commissions are re-establishing control over power companies that they ceded during earlier waves of deregulation. The Education Department is taking a step toward nationalizing the market for student loans, after private lenders abandoned that business.
"There's a backlash against the laissez-faire, 'isn't-it-wonderful-how-creative-markets-are' viewpoint," says former Fed Vice Chairman Alan Blinder, a Democrat. "Markets are creative, but sometimes the creativity leads to strange and dangerous directions." (Link)
This new wave of regulation comes with hearty public approval, no doubt shaped by the recent failures of the deregulation policies. A new poll from the Wall Street Journal and NBC News shows, by a margin of 53-42%, Americans want government to "do more to solve problems". When the poll was taken twelve years ago, the respondents opposed government intervention in markets by a 2 to 1 margin.
The logical result of this call for increased oversight will be the increased power of the federal government. Federal Reserve Chairman Bernanke and Treasury Secretary Paulson will become big guns over the coming months.
There's some irony here. In 2000, the Bush Administration entered office pledging to minimize the role and size of the federal government. That same Administration will now be forced to increase its size and oversight role in order to undo the damage those strenuously defended hands off policies have caused.
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