Virtuality and the Financial Crisis: Part 2
Corrective measures envisioned by lawmakers in the heat of the financial crisis are directed toward strengthening oversight of financial markets. The regulatory system including the Federal Reserve, the Securities Exchange Commission, and other Federal agencies collectively may have been unable to detect the formation of a speculative bubble in the housing market; or perhaps the system detected problems but failed to act on a timely basis. Interest rates could have been raised to reduce the amount of credit available for house purchases, and abusive lending practices could have been curtailed giving potential buyers more accurate information about their ability to carry a mortgage, and thus reducing the chances of defaults and foreclosures later on.
Overhauling and strengthening regulatory oversight of financial markets is a sensible step, but not enough to prevent a recurrence of the frenzied pursuit of profit that precipitated the crisis. Not all mortgage lenders succumbed to the lure of higher profits through securitization of loan portfolios.