Quote Originally Posted by 2_Thumbs_Up
I think this situation is a clear cut case of government failure, mainly because our entire monetary system is actually an invention of the government. Imo, the denationalization of money is probably the most important political issue, and most people have never even thought of it.

On regulation, the financial sector is probably the most regualated sector in the entire economy already. I think the statement that deregulation caused this is absurd. I'd like it if someone actually names one thing related to this crisis that isn't regulated. I don't think the problem is lack of regulation at all, but rather the kind of regulation. The market is self-regulating. Greed is supposed to be balanced with fear, but the government has taken away all the fear. By looking at what's happening now I think this point gets clearer. It's the market that tries to regulate the bad banks out of business. It's the government that rewards this bad behaviour.

Though I think there is one area where the government has failed to do what it's supposed to. One legitimate role of the government is to regulate fraud. I think the concept of fractional reserve banking is fraudulent and it should be outlawed. With that simple regulation this crisis would never have occured. But this has nothing to do with deregulation, because this regulation has never actually existed in the first place.
One of the problems with unfettered capitalism is that people can rip each other off by selling them things that aren't worth what they claim, or don't do what they claim, or are unsafe. Caveat emptor clearly isn't sufficient when you're buying things like pharmaceuticals or even home mortgages. But I agree that gov't played a huge role in the subprime mortgage crisis, both overregulating (Greenspan's monetary policy) and underregulating (allowing banks to become ridiculously leveraged).