Regulation couldn’t prevent mortgage crisis

Adjustable loans, default risk a recipe for trouble
Published on Oct 27, 2008

When a presidential election falls in the middle of a financial crisis, it is not surprising that we are besieged with misinformation. Much of it is finger-pointing about responsibility for the absence of effective regulation that would have stopped or moderated the crisis. This article aims to provide some perspective on this issue. Political responsibility for inadequate regulation: There are two sectors where more extensive regulation might have made a difference. These are the investment banks and the government-sponsored enterprises (GSEs) of Fannie Mae and Freddie Mac. Both sectors were major players in the events leading up to the crisis. In 2004 the U.S. Securities and Exchange Commission (SEC) adopted a rule that pretty much allowed the investment banks to regulate themselves. While a number of other factors were involved in this decision, the commission's belief at that time was that self-regulation would be more effective than SEC regulation. This policy was cons...