A Few Words on Financial Institution Regulation and Why It's So Important

While its origins are now forgotten by many, hidden as they are by the ongoing economic woes of individuals and businesses, the current worldwide financial crisis had a distinct beginning. That distinct beginning may have been the "final straw" for overly burdened and extended economic systems, but it nonetheless occurred. The beginning was the collapse of several investment bankers, the most significant of which was the collapse of Lehman Brothers. When Lehman collapsed things went down quickly throughout the world as the financial systems in many countries were heavily leveraged; Lehman's bankruptcy was the largest in U.S. history, and affected the value of investments everywhere.

The collapse of Lehman Brothers and the enormous economic downturn that followed is not the first time such a thing has happened. the economic downturn here is more severe than most (but not all) of these events, but it is recurrent. It follows deregulation sort of like the plague.

In recent history, the savings and loan crisis of the mid 1980's, the corporate accounting and securities frauds of the late 1990's to 2001, and the banking, mortgage, and securities meltdown of the late 2000's were all due to lack of (sometimes outright removal of) financial oversight of financial institutions. These three, coupled with the current recession, which came from the 2007-08 collapse, should be evidence enough since these are every significant economic downturn in the last 30 years. But look at longer history: there's the Black Friday market and economic collapse of 1869 caused by the Fisk-Gould attempt to corner the gold market ; there's the Panic of 1873 which led to what's now known as the Long Depression caused by the silver market falling apart; there's the Panic of 1907 (I wrote about it here) caused by an attempt to corner the copper market; and there's the big mamma of them all, the stock market crash of 1929 that led to the Great Depression, just to name a few.

All of these were caused by a lack of regulation -- by unbridled and irresponsible trading and investing -- and all led to substantial economic reforms which after a time were forgotten or not well enforced. One would not say that these economic downturns happened in a vacuum; the conditions existed where such a downturn could occur. The fact is, while investors and the public like to think of each transaction as an isolated event, market transactions are highly interrelated (whether by design or not) and correlate with the ability of businesses to operate and so make products, offer services, turn a profit, and employ people. Regulation is necessary to set prices but to set limits and provide a check on a market melting down.

Republicans (and many others) while initially acknowledging the mistake, seem to "forget" history, and aggressively fight attempts to impose oversight over the system, and when they've failed, seek removal of those laws claiming they "hurt business." Their view is that this is good business is simply wrong.