In a society that celebrates the idea of making money, it was easy to infer that the interests of the financial sector were the same as the interests of the countryand that the winners in the financial sector knew better what was good for America than did the career civil servants in Washington. Faith in free financial markets grew into conventional wisdomtrumpeted on the editorial pages of The Wall Street Journal and on the floor of Congress.
From this confluence of campaign finance, personal connections, and ideology there flowed, in just the past decade, a river of deregulatory policies that is, in hindsight, astonishing:
insistence on free movement of capital across borders;
the repeal of Depression-era regulations separating commercial and investment banking;
a congressional ban on the regulation of credit-default swaps;
major increases in the amount of leverage allowed to investment banks;
a light (dare I say invisible?) hand at the Securities and Exchange Commission in its regulatory enforcement;
an international agreement to allow banks to measure their own riskiness;
and an intentional failure to update regulations so as to keep up with the tremendous pace of financial innovation.
The mood that accompanied these measures in Washington seemed to swing between nonchalance and outright celebration: finance unleashed, it was thought, would continue to propel the economy to greater heights.
And it did - for a while.
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