The Flaw in Blaming the Fed. It's politics. Until one can demonstrate free market capitalism in our economy, some of our economic experts should stop excusing government interference in the financial crisis. Banking may be the most regulated of industries- but the fed is the scion of banking and government. As the financial system comes crumbling down, the 20/20 hindsight begins. Of course the casualty of this latest fiasco will be free markets. But when you examine the industries that have had massive scandals, you'll find a list of the most highly regulated industries including telecoms (WorldCom), energy/utilities (Enron, NorthWestern) and banking (too numerous to mention). In fact "libertarian free-market fundamentalism" hasn't really existed in the scandal industries (banking, telecom, banking/investing and airlines). In fact we find the most highly regulated, highly watched industries are in fact the most prone to scandal. Are Scandals Inevitable in Regulated Industries? - Wealthy Reader The banking industry is a highly regulated industry with focused regulators. In the U.S., banks with FDIC-insured deposits are regulated by the FDIC, Fed-member banks are regulated by the Federal Reserve, the Office of the Comptroller of the Currency regulates national banks, and the Office of Thrift Supervision is the federal regulator for thrifts . Banking Industry - Business Exchange And few industries are as risk averse as those that are heavily regulated by the federal government or state governments It is ENTIRELY possible to innovate within a regulated industry .However, the fact that a firm is regulated doesn't give it a pass for innovation. In fact, it may make the need for innovation even greater. Here's why: heavy regulation builds a comfortable fence around an industry, and the key players within that industry usually agree to divide the market up. Innovate on Purpose: Innovating in a regulated industry So, then, how does a highly regulated industry such as banking innovate? Visa had the most former Congressional officials, with 37 lobbyists; it was followed closely by other financial powerhouses like Goldman Sachs, Prudential, Citigroup and the American Bankers Association, according to the analysis from Public Citizen, an advocacy group that has pushed for tougher lobbying restrictions. The case of Peter S. Roberson, whose hiring by a derivatives clearinghouse drew the ire of Mr. Frank, is the most extreme, and it points to holes in the rules governing lobbying by former aides. As a senior aide to Mr. Frank on the House financial services committee, Mr. Roberson helped draft legislation last year on regulating the over-the-counter derivatives market, which played a big part in the 2008 market collapse. After leaving his Congressional post in January, he began working as a lobbyist for IntercontinentalExchange, the worlds leading clearinghouse for derivatives. Minting Bank Lobbyists on Capitol Hill - NYTimes.com So, what can we conclude from these readings? 1. To blame the free market for the mortgage meltdown recession is somewhere between dubious and disingenuous. 2. To theorize that one single factor, such as fed policy is the culprit is shortsighted. 3. Corporatism, or crony capitalism has a heavy thumb on the scale. 4. Regulation as a solution is far from a firewall. In fact, allowing government regulation is a shortcut to corruption.