Given the credit market debacle and failures of Bear Stearns, Fannie, and Freddie, it’s incredible how little concrete action or debate has taken place about how to correct the systemic problems that have led to these monumental taxpayer bailouts. The assumption is that new and more stringent regulation is coming. Are we talking about something as dramatic as the return of Glass-Steagall (separating investment banks from commercial banking) or what? The CMBS market clearly failed at regulating itself — the rating agencies proved totally lame and the B-piece buyer cartel didn’t live up to the hype about kicking out all the bad loans from offerings. It appears there may be a Congressional battle royal over what to do with the mortgage GSEs, including reconstituting them or doing away with them. And should it be government policy to encourage people to own homes when many people would be better off not owning them?

The Fed and Treasury Secretary are so wound up in averting one crisis after another, they don’t have time to ponder long-term solutions. Politicians, meanwhile, don’t want to confront any complex issues at election time. Let’s not muddy the water on real reform and get people confused about why taxpayers may be on the hook for $100 billion or more in various bailouts when candidates can vamp about stopping the Bridge to Nowhere or defend why they took per diem expense reimbursements for living in their own home.  And meanwhile, the federal deficit is projected at $407 billion, the largest ever.

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