Principles for Ethical and Effective Financial Market Regulation

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The 2008 financial crisis is an obvious example of a poorly functioning financial sector—but not because financial markets were deregulated in the 1990s. In fact, the primary causes of the 2008 crisis were excessive government regulation, over-involvement, and poor monetary policy. Financial firms funded too much unsustainable activity largely because of the rules and regulations they faced, as well as the widespread expectation that the federal government would step in to mitigate private losses.

The dominant narrative of that time—that financial market deregulation, including the supposed 1999 repeal of the Glass–Steagall Act, caused the 2008 crash—is dead wrong. The Glass–Steagall Act was not repealed in 1999,REF and at no point during the 20th century was there a substantial reduction in the scale or scope of U.S. financial regulations: In fact, the sheer number of financial regulations steadily increased after 1999.REF For decades,…

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