The call for more federal control overlooks inconvenient facts. The first is that the talent of those performing, assessing, and profiting/losing from the inherently risk-bearing financial intermediation activities dwarfs that of regulators, if only because they have far more to earn–integer multiples in fact–from carrying out and asssessing their risk-bearing activities in good faith than civil servants have to earn from their meager salaries. It’s much like the JV’s (SEC) versus the Varsity (Wall Street) If the SEC couldn’t foresee the first downturn in housing prices since the great depression and the wide spread lending to credit-unworthy participants that other govt agencies sanctioned, what suggests we should place greater faith in their ability to foresee the next systematic problem and prescribe a prevention before the event?

Now, some regulatory laxity could have been identified “by grandma” before the fact and some simple actions taken that would have, IMO, cut the severity of the losses by perhaps half, which would have reduced the ripple effect by an order of magnitude.These included (on the Republican side) the Bush appointed SEC Chairman Chris Cox’s 2004 decision to investment banks to double their leverage from ~17-1 to ~34-1 and (on the Democrat side) resistance to Republican attempts to reign in the similarly levered ~1.5 trillion dollar sized portfolios of Fannie Mae and Freddie Mac inspite of the immediately preceeding (early 2000s) accounting scandals that resulted in government fines (i.e. guilty rulings).

But keep in mind, any prevention would have followed the old 80/20 rule. (With 20% of the “do everything” effort, 80% of the benefit can be reaped.) Did the Democrats have the will to perform that 20% on Fannie and Freddie? No!