This 15 year-old Washington Monthly cover story by Senator Byron Dorgan warning of the dangers of the underregulated derivatives sectors sure does make for interesting reading.
That said, it’s still not entirely clear to me that the rules we had on the books during the 2001-2007 upswing were actually inadequate to the problem. They weren’t a self-enforcing mechanism to keep us out of trouble, but no set of rules on a complicated subject would be. They required human agency to work. And the vast majority of the human agents were in the grips of a neoclassical economic theory that told them that the operations of the private market couldn’t be problematic in this way and that any market failures that might have existed were surely trivial compared to the problems that would be created by government intervention. That theory’s wrong, but it’s hard to see how any ship of state piloted by people holding those beliefs could possibly have steered clear of the shoals.
Rachel Maddow turns out to have done a good segment on this last night:
There’s definitely something too simplistic about the story “we deregulated in the 80s and 90s, opponents warned there would be a crisis, and now we’re in the crisis.” But I think it’s equally true that the same mindset that was behind the change in rules was also behind the failures in foresight and enforcement—there’s a popular economic dogma that essentially holds that it’s impossible for the free market system to produce major crises and convulsions, notwithstanding the clear historical evidence to the contrary.