Where's Elliot Ness When You Need Him?
Over at Rortybomb , Mike Konzal and Jeffrey Friedman have engaged in a lively discussion on the role of regulation in the failure of the financial sector. Jeffrey Friedman is the editor of Critical Review , and a contributor to the Causes of the Crisis blog (a great resource for people like me who are seeking out various perspectives in an attempt to understand why the economy tanked so terribly.) Jeffrey believes the crisis is the result of regulation - specifically, no-recourse laws that many states had on the books that enabled consumers to walk away from mortgages they had no interest in paying back, and the Recourse Rule, which rated MBSs favorably, thus were more attractive to bankers. Since I'm not a banker or economist, I'll let Jeffrey explain the Recourse Rule : "Under the Recourse Rule, an AA- or AAA-rated asset-backed security, such as a mortgage-backed bond, received a 20-percent risk weight, compared to a zero risk weight for cash and a 50-percent r...