Five+ regulatory failures led to the current crisis: Trade deficit, housing bubble, ratings agencies, predatory lenders, financial "innovation"

January 22, 2008 | Under the Shadow of Recession | Deregulation and the Financial Crisis | By ROBERT WEISSMAN
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The current crisis is the predictable (and predicted) result of a massive U.S. housing bubble, which itself can be traced in part to global economic imbalances that could have been prevented.

At least five distinct regulatory failures led to the current crisis.

Regulatory Failure Number One: Failure to Manage the U.S. Trade Deficit. ....

Regulatory Failure Number Two: Failure to Intervene to Pop the Housing Bubble. ...

Regulatory Failure Number Three: Financial Deregulation and Unchecked Financial "Innovation." ... In the new era, banks and non-bank mortgage lenders made loans, but then sold the loans to others. Investment banks packaged lots of mortgage loans into "Collateralized Debt Obligations" (CDOs) and then sold them on Wall Street, with a promise of a steady stream of revenue from interest payments. These operations were pretty much unregulated. ...

Regulatory Failure Number Four: Private Regulatory Failure. It was the job of ratings agencies (like Standard and Poor's, and Moody's) to assess the CDOs and give investors guidance on how risky they were. They failed totally, likely in part because they wanted to maintain good relations with the investment banks issuing the CDOs.

Regulatory Failure Number Five: No Controls Over Predatory Lenders. The toxic stew of financial deregulation and the housing bubble created the circumstances in which aggressive lenders were nearly certain to abuse vulnerable borrowers. ...
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... Preventing financial panics of the kind now underway require new standards of transparency and regulation for high finance. The coming days and months will tell whether any lessons have been learned. ...