Those who argued for deregulation-and continue to do so in spite of the evident consequences-contend that the costs of regulation exceed the benefits. With the global budgetary and real costs of this crisis mounting into the trillions of dollars, it's hard to see how its advocates can still maintain that position
At a recent lunch I attended at USC, President Barack Obama compared the US economy to a car that had been driven into a ditch. The Democrats, he said, have been working to push that smoldering, wrecked car back up the cliff while the Republicans have been standing at the top doing nothing.
"And now they want the keys back!" he yelled.
This is a compelling metaphor (maybe that's why he keeps using it) and one that has received much attention.
In this speech, Obama also explained -- before he got to the car metaphor -- that the Republicans are running on the "same policies that got us into this mess."
"A strategy premised on amnesia," he called it. "We have not forgotten. We don't have amnesia," he shouted to a cheering crowd.
But we will see on November 2 who has amnesia.
There is no shortage of hypothesis for why the economy is where it is and why Obama's popularity has dropped, but there is some forgetfulness about how we got into the position of needing economic stimulus in the first place.
While Republicans who are running on the same policies that created the greatest economic catastrophe of the last 75 years seem to have forgotten, the most renowned economists in the world have not.
Nobel Prize-winning economist Joseph Stiglitz, in his bestselling book "Freefall: America, Free Markets, and the Sinking of the World Economy," argues that better regulation could have prevented or at least dampened this economic disaster.
Better regulations, he contends, could have prohibited mortgage initiators from peddling complex, unusual and risky mortgages to millions of people, who are now losing their homes because of these products. Good regulation may have countered perverse incentives that earned the banks billions of dollars repackaging these risky loans. And regulations could have at least minimized the extent of the wreckage, by preventing banks and ratings agencies from turning the toxic sub-prime mortgages into AAA rated products, which were then bought by unknowing investors including pension funds.
Some still argue that regulation stifles innovation. Well, the banks and insurance companies could have used some stifling of their innovative practices in mortgage securitization and over-leveraging.
So, according to economists like Stiglitz, if financial-reform-bashing Republicans take over Congress, and Wall Street continues to run largely unregulated, the divide between Wall Street and Main Street will continue to widen. Those hoping for some economic miracle from Republicans may instead be facing another economic crisis in the next 10-15 years caused by the very same abuses and perverse incentives that created this Great Recession we are in.
And undoing the financial regulations which have recently been put into place is exactly what Republicans plan on doing.
In "Freefall," Stiglitz states:
Maybe it is amnesia.
I just hope that Obama is right and the voters don't have the amnesia that the candidates seem to have.