Swaps on 60 Minutes

CDS's obviously provide crucial liquidity/hedging tools for the markets, but the argument that "regulation is never the answer" is completely asinine. Establishing a clearing house and centralized market for CDS's would not mitigate or "outlaw" their effectiveness. Look at the options market -- the establishment of the CBOE and OCC created MORE liquidity by providing investors with confidence in the markets.

And if the 1977 CRA really caused the sub-prime crisis, then how do you explain the following?

"CRA was enacted in 1977. The sub-prime lending at the heart of the current crisis exploded a full quarter century later. In the mid-1990s, new CRA regulations and a wave of mergers led to a flurry of CRA activity, but, as noted by the New America Foundation's Ellen Seidman (and by Harvard's Joint Center), that activity 'largely came to an end by 2001.' In late 2004, the Bush administration announced plans to sharply weaken CRA regulations, pulling small and mid-sized banks out from under the law's toughest standards. Yet sub-prime lending continued, and even intensified -- at the very time when activity under CRA had slowed and the law had weakened.

Second, it is hard to blame CRA for the mortgage meltdown when CRA doesn't even apply to most of the loans that are behind it. As the University of Michigan's Michael Barr points out, half of sub-prime loans came from those mortgage companies beyond the reach of CRA. A further 25 to 30 percent came from bank subsidiaries and affiliates, which come under CRA to varying degrees but not as fully as banks themselves. (With affiliates, banks can choose whether to count the loans.) Perhaps one in four sub-prime loans were made by the institutions fully governed by CRA.

Most important, the lenders subject to CRA have engaged in less, not more, of the most dangerous lending. Janet Yellen, president of the San Francisco Federal Reserve, offers the killer statistic: Independent mortgage companies, which are not covered by CRA, made high-priced loans at more than twice the rate of the banks and thrifts. With this in mind, Yellen specifically rejects the 'tendency to conflate the current problems in the sub-prime market with CRA-motivated lending.' CRA, Yellen says, 'has increased the volume of responsible lending to low- and moderate-income households.'"

http://www.prospect.org/cs/articles?article=did_liberals_cause_the_subp…