Easy money and incompetent government, not a shortage of rules and regulations, produced the U.S. financial collapse

The most sensible legislative response to the financial collapse of September 2008 would have been to do nothing until the causes of the collapse were fully understood.

There is no urgency about legislating financial regulatory reform. The existing regulatory agencies have virtually total authority over the financial industry. And because they were asleep at the switch when disaster struck, they are now hyper- alert to prevent a repetition of it. Indeed, bank examiners have become so fearful of condoning risky practices that they are making it difficult for banks to lend to small businesses and consumers and thus are retarding the economic recovery.

The principal factors in the recent economic collapse were:

No. 1. Incompetent monetary policy, which under former Federal Reserve Chairman Alan Greenspan and his successor Ben Bernanke produced the housing bubble that burst, bringing down the financial industry, which was heavily invested in the mortgage market.

No. 2. The inattention of the Fed and the Securities and Exchange Commission, which didn’t understand the changing nature of the banking industry, particularly the rise of so-called nonbank banks dependent on short-term, noninsured capital.

No. 3. The over-indebtedness of the American people and government, which has hampered the restoration of credit.

No. 4. The failure of the Treasury Department under former Secretary Henry Paulson and the Fed under Bernanke to rescue Lehman Brothers Holdings Inc. They didn’t realize that Lehman’s bankruptcy would trigger a run on the banking industry, causing a global credit freeze.

Barack Obama’s main economic officials -- Bernanke, Treasury Secretary Timothy Geithner, and National Economic Council Chairman Lawrence Summers -- were implicated in the regulatory oversights that precipitated the crisis, as were key legislative officials, such as Senator Christopher Dodd and Congressman Barney Frank. None of them wants to shoulder blame for the crisis. Instead, they blame the banking industry.

Shocker: U.S. wouldn't qualify for foundering EU

...neither financial markets nor European citizens are convinced any longer that the EU can live by the very rules that made its common currency and economic policy existence possible. That rule, basically, is this: No EU nation can run a deficit of more than 3% of GDP annually, and none can exceed public debt of 60% of GDP annually.

The PIIGS are by far the worst when it comes to this critical measure of budget discipline. Portugal, for instance, has a deficit of 9.3% of GDP, and debt of over 80%. But it's not alone. No major nation in the EU meets the criteria for membership today. Investors don't want their bonds.

What's this got to do with the U.S.? Plenty. Right now, we wouldn't qualify for EU membership either. And just because our government refuses to address its own fiscal irresponsibility, doesn't mean the people aren't thinking about it.

In a newly released Fox News poll, 78% said they feared a U.S. financial collapse brought on by fiscal mismanagement. And by 3-to-1, respondents said the nation's exploding federal debt was a more serious problem than terrorism.