Sowell is fantastic, of course. And I agree with much of what he says.
But I do have a little problem with what he says in the citation above. It's becoming clear that the most important contributing factor to the financial meltdown did grow out of a "deregulated," or at least improperly regulated, segment of the financial markets, i.e., the 30 year old derivative markets, most especially Mortgage Backed Securities (MBS) and the even newer financial instruments, Collateralized Debt Obligations (CDO). The side markets that investment banks created to profit from these derivatives, when mixed with stable or falling home prices, eventually undermined the entire economy.
For an enlightening examination of the topic, read Michael Lewis' piece in Portfolio, which can be found here.
“’deregulated,’ or at least improperly regulated”
Two TOTALLY different things!
You are correct that the unregulated mortgage backed securities were largely at fault, but you aren’t digging deep enough. Why were all those created? It was largely a reaction to the forced issuance of bad loans under the CRA.
Here’s how it works: The libdolts regulate the cr@p out of some part of the economy, here mortgages, making them unviable. The private sector responds by offloading the risk into a less regulated area, here the mortgage backed securities. The risk doesn’t vanish, though, it just shifts and eventually explodes.
If the libs would have regulated those securities, the private sector would have moved the risk to something else.
The only way to stop this through govt oversight is to regulate EVERYTHING. That’s called socialism, communism, or facsim, depending on the manner used and extent of regulation. Of course, that doesn’t work either, and the whole thing collapses that way, too.
The solution? Stop govt from trying to make business decisions at all. And also stop govt from trying to force the hands of the private sector. Regulate to stop fraud, monopoly, etc., then stay out of the way. The free market will then handle risk in the right places, and corrections will happen sooner with much smaller impact.
PS If the underlying mortgages were OK, MBS’s and those other instruments would have been OK. Actually would have been useful for risk management to handle nomal defaults, etc. The problem was they were built on a faulty foundation, namely bad mortgages that the banks were forced to write due to CRA and the like.