Pundits on the cause of the financial crisis.

I am reading an article in the Wall Street Journal today by Charles W. Calomiris. The point of his article is to explore the reasons for and solutions for the financial crisis. He rebuts pundits arguments that deregulation and small government are the reasons for our current financial crisis. He asserts that federal and state tax revenues have been growing faster than home prices during the past eight years. He wonders if the problem hasn't been the enormous growth in spending and entitlements over the past eight years "not seen since the days of LBJ. Congressional Democrats--along with a surprising number of pork-barrel Republicans--demanded nonwar spending on a Great Society scale and the president gave in to buy their votes for the war."

Mr. Calomiris explains that financial deregulation has existed for the past three decades. The deregulation removed the ceiling on deposit interest-rates, relaxed branching powers, and allowed commercial banks to begin underwriting and insurance and other financial activities. The ability of J.P. Morgan Chase to buy Bear Stearns and Merrill Lynch was due to the new abilities of commercial banks. And they were a financial stabilizer in the recent crisis. The deregulation also allowed Goldman Sachs and Morgan Stanley to add banks to their offerings. This gave them the money and stability to not go under when the stock market declined.

The ability for financial institutions to engage in subprime lending, securitization and dealing in swaps are all things that were available to these institutions all along because of the deregulation that already existed. The problem seems to be the rules that these instutions were under. The rules were and are called the Basel Rules. These rules set the standards for measuring bank risk and allocating capital to absorb that risk. Mr. Calomiris states that these rules are what failed miserably. The rating agencies and modelers were given the job of measuring risk, but some of them were the banks themselves. You don't have much incentive to mandate low risk when you are trying to get the most return on your investment. For these several reasons, Mr. Calomiris rebuts the pundits for blaming the financial crisis on deregulation and small government.

In his article, Calomiris quotes Gustav Jahoda (a social psychologist) in saying that "unreasonable beliefs often arise in circumstances where people lack control and need to believe in something to get them through a highly stressful situation." Calomiris reflects that these unusual events (financial crises) come about from a variety of circumstances that come together at once. They are not usually the result of a single, foreseeable fault in the system.

So my response is: why don't the politicians believe that we are smart enough to understand a reasonable explanation of problems and a reasonable, thoughful, wise plan for dealing with current issues? We are. What did I want from the debates? Factual, distinct responses for problems facing this nation marked by keen discernment. I did NOT want finger pointing, blaming of the current administration as a reason not to vote for the other, and generalizations on how they will solve problems. Give me something solid to go on. I don't feel that I have a very good basis from which to judge either candidate based on the debates and commercials. I don't need to know your stand on every topic that will face you as president. But I do need a feel for your style of responding and I need to know how you will work to solve the problems that affect Americans directly, because that is one thing we understand. I need to know HOW, not if, you will balance the federal budget and pay off debt. It is not an option not to balance the budget and pay off debt. No more spending can or should be done until this one issue is solved. Debt is what has gotten every single person in trouble in this current financial crisis. Those without debt are not suffering. They may feel imposed on, but are not suffering. I am a person with as much knowledge and understanding as any news reporter, pundit, campaign manager, or analyst. I can understand complex concepts. So cut the crap and lets hear something real: how about the orderly arrangement of a program of action, or a plan with sensibility and good judgment, a speech bereft of labeling and abstracts but with calm, speaking of observable and defined solutions to the issues facing us the next four years.