Too Bad to Forget

If it has proved difficult for the federal government to deal with the long-term effects of the financial crisis, it is proving no less difficult for it to deal with the causes of the crisis.

The regulatory problems that led to the collapse of credit markets, though not particularly mysterious, are complicated, and solving them will be complicated too. Predictably, the financial industry is fiercely opposed to any measure that might limit its profits. In the first half of 2009, it spent $42 million to lobby against proposals that would force banks, investment firms, and credit-card companies to change the way they do business. Republicans in Congress, as well as a few Democrats, are opposed on principle (or at least in theory) to any change that would increase the federal government’s involvement in the private sector. Against all evidence, and every reasonable analysis, they still say it was too much regulation, rather than too little, that crippled the financial system.

Fortunately, most House Democrats have ignored them. Last month they approved a bill that would help prevent Wall Street from again endangering the U.S. economy in reckless pursuit of short-term profits. The legislation would create a consumer financial protection agency to crack down on predatory lending practices. It would regulate some of the “over-the-counter” derivatives that turned a slump in the residential real-estate market into a deep recession. Investors would be allowed...

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