That's a debatable point. The Fed's interest rate reductions in early 2000s have caused recent credit/real estate bubble. If you listen to the Austrian School economists you would hear that without regulation (central banks) the market would set the price of money (interest rates) more efficiently. We would have more frequent booms and busts but of much much lesser magnitude.
So it was politically motivated regulation that caused this recession/depression.
It wasn't a housing bubble that caused the GFC, if that was all it was it would have been contained to real estate. What brought down so many large institutions was the toxic debt and dodgy dealings they had accumulated, this was allowed to happen due to deregulation. Particularly, the introduction of the gramm-leach-billey act deregulating banking, insurance and securities into one finances industry... and very specifically the exemption of swap agreements from SEC regulation (ie toxic debt).
At least that's my opinion and the opinion of some very respected economists.
http://en.wikipedia.org/wiki/Gramm-Leach-Bliley_Act#Criticis...
Further evidence is the current calling, from all quarters, for tighter regulation of the finances industry to avoid another GFC not less.
Artificially low rates would force anyone to seek yields at any costs, so portfolios were stuffed with all sort of junk, so your 'contained to real estate' point is not correct.
I would also argue that banks accumulated toxic assets because theey believed that they would be bailed out (moral hazard argument), which is the direct consequence of regulation.
'Too big to fail' idea has been around for quite long, one can start from LTCM more than 10 years ago, and it of course existed before that.
Fraudulent behavour is common to free market economies, but normally market participants develop mechanisms to filter out scammers (for instance J P Morgan used to say that nobody could become client of his bank without an introduction). It is when the government takes over controlling responsibility and then fails to deliver (Madoff) we have massive problems.
Extremely debatable. Better regulation would have prevented the housing crash but the regulation Americans got (with bipartsian support!) had the effect of making borrowing to buy a house ever easier, thus inflating prices, leading to a crash when it became obvious there were no greater fools left.
There's mention there of a political goal ... "of increasing minority home owners by at least 5.5 million by 2010 through billions of dollars in tax credits" ... which is not the same as regulation.
The timeline does attribute removal of regulation for the financial sector .. and also the exclusion from regulation for credit default swaps, which is pretty much the reason Bear Sterns, AIG, Lehman Bros et all went under. They stuffed themselves to the gills with toxic debt, which is fine while everything is going swimmingly, but when the housing bubble bursts it becomes more than just a burst bubble... which is all it would have been if the finance sector had been properly regulated.
The Community Reinvestment Act encouraged banks to make risky loans and if banks didn't make such loans the government would start snooping around in their business. The understanding has always been that the government would bail out massive losses in these loans. Some of the deregulation made things easier for this to happen but the recession would have been regardless of these factors. Job growth over the last ten years has been almost entirely focused in housing and related industries.
An act which may encourage banks to lend is not regulation. The belief that gov't would bail out the big players does not indicate over regulation, or even appropriate regulation. Quite simply it was the regulation exemptions that were provided which made this thing far worse than it could have been.. and far more widespread.
The idea that large financial institutions would conduct themselves responsibly without regulation, and not give way to greed, is complete rubbish and has been proven so, even the most conservative on capitol hill admit that these days.
This juvenile practise of downvoting simply because one disagrees does not change the fact that legislation != regulation, in fact one can legislate to remove regulation.
And btw, the Community Reinvestment Act was introduced in 1977, I doubt it played a major influence in the GFC of 2008.
In 2000 regulation was removed for credit default swaps, Lehman, AIG, Bear-Sterns,FM & FM and others all went under due to overload of toxic credit default swaps. Proper regulation could have avoided that... now we have the undesired result of Government owning some of these failed creatures.. which is even worse than government regulations.
If you count underemployed, discouraged workers and the U-2 figure then we're at about 18% unemployment right now. If we're still in this situation after ten years despite all the artificial stimulus I think it's just a joke to call it anything less than a depression. I'd argue we've been in a depression since the tech bubble burst and that we've just been papering over the mess for the last ten years. Considering that job growth has been basically zero for that period I'd say we've been kidding ourselves with statistics for awhile now.
So it was politically motivated regulation that caused this recession/depression.