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How did it happen that banks were allowed to outsource this function to unregulated entities? Where the regulators asleep at the wheel or complicit?

Krugman answers:

Eventually, however, Wall Street did an end run around regulation, using complex financial arrangements to put most of the business of banking outside the regulators' reach. Washington could have revised the rules to cover this new "shadow banking system" -- but that would have run counter to the market-worshiping ideology of the times.

Instead, key officials, from Alan Greenspan on down, sang the praises of financial innovation and pooh-poohed warnings about the growing risks.

"Dieu se rit des hommes qui se plaignent des conséquences alors qu'ils en chérissent les causes" Jacques-Bénigne Bossuet
by Melanchthon on Tue May 6th, 2008 at 08:37:34 AM EST
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