This has gotten some traction in the Headlines, so let’s put the video up here, courtesy of Greg Hengler at Town Hall. Howard Dean tangles with Jason Lewis over the role of government in the economy and the financial crisis, and concludes that he’s had enough of capitalism, thank you very much:

It’s absurd, but it’s also a straw man. One can point to a number of factors in the economic collapse, but Dean ignores the root cause of the failures in the financial markets. Bad regulatory decisions went both ways. For increased regulation, we imposed mark-to-market rules that forces financial institutions to show massive losses when the crisis first appeared, even though they hadn’t actually sold anything or taken an actual loss, amplifying the panic.

Deregulation also played a role. Removing the uptick rule also made the crisis exponentially worse as short-sellers raided teetering institutions. Coming closer to the heart of the crisis, an explosion of derivatives and insurance policies surrounding mortgage-backed securities (MBSs) also amplified the effects of their rapid devaluation. The lack of proper oversight on these markets at least allowed them to spread in ultimately irrational ways.

However, it was the mortgage-backed securities and their failure that sit at the heart of the crisis, and those came directly from government regulation and intentional distortion of the markets. They sprang from Congressional demand to spread lending to borrowers who normally wouldn’t have qualified for mortgages, with Congress explicitly mandating Fannie/Freddie purchases of these subprime loans, setting in motion an irrational bubble in the housing and construction markets. Congress had the GSEs generate the MBSs to spread the risk of these subprime loans. If not for those actions, the bubble would never have occurred, and neither would the derivatives and regulatory failures.

We have never had pure capitalism in this country, at least not in the last century. We have always regulated markets to some extent. The problem in this case is neither the capitalism or the regulation, but the deliberate government distortion of both to further political goals. That’s what we need to eliminate in the future, not capitalism or regulation as a whole, nor the establishment of either to the eradication of the other.