“I’d say it was their lack of faith in free markets.”
The financial markets were far less regulated during the bubble than they had been for many decades.
The Commodities Futures Modernization Act of 2000 had been lobbied hard by investment firms that wanted the derivatives market to be unregulated. This prevented the oversight and transparency that Brooksley Born had warned was badly needed.
‘Graham-Leach-Bliley’, the Financial Services Modernization Act of 1999, undid most of what remained of the Glass Steagall Act. Glass Steagall had walled investment banking off from the “real economy”. After a 65 year hiatus the short term speculative focus of investment banking was reentering the “real economy”.
And added to that, the nature of investment banking had radically changed. Investment banks used to be partnerships, and they were careful because they were investing their own money. But now they were public companies and they were investing Other People’s Money, leading to a casino atmosphere among traders.
Can’t trust markets to house people. Must use the power of Government to HELP the people. Markets enrich the rich, government HELPS people.
That is the core belief of all statists.