The Sky is Falling. (Really!)

For thirty years, the Republican Party and the financial services industry have been ideologically committed to deregulation. Free markets, they told us, are self-regulating. Any attempt by government to interfere in their operation can only make them less efficient. The controls imposed by New Deal Democrats have been like anchors, keeping the economy from surging ahead, or like poisons stunting its growth.

Yesterday, the President's Working Group on Financial Markets (PWG) issued a report that is the equivalent of blaspheming in church not by a single minister, but by the whole college of cardinals. It admits that our current financial crisis is largely the result of "regulatory policies, including capital and disclosure requirements, that failed to mitigate risk management weaknesses."

The PWG, which included representatives of the Treasury, the Fed, the SEC, and the Commodity Futures Trading Commission, would not have called for in increase in regulation in response to anything less than a catastrophe. Despite all the attempts to sound upbeat by the Administration and by Wall Street, the report of the PWG is a clear indication of just how bad things are -- bad enough so that even free-market ideologues are willing to take action to keep the same problems from cropping up again.

The recommendations include licensing and regulating mortgage brokers, disclosing conflicts of interest by the bond rating agencies, and requiring far more transparency when banks prepare securitized debt obligations. Granted, such steps are like closing the barn door after a herd of horses has escaped and trampled the corn, the alfalfa, and the vegetable garden. They will do nothing to alleviate our current crisis, but should make it harder for such a crisis to repeat itself down the line.

In the meanwhile, the dollar is sinking like a block of lead, oil is trading at $110 a barrel, and increases in the prices of corn, wheat, and other commodities show no signs of letting up. We are told that the weaker dollar will give our exports a competitive advantage and improve our balance of trade. That might be true if we had anything significant left to export apart from food crops and military hardware, but despite a tanking dollar, our balance of trade still is negative. Our remaining manufacturers are selling more overseas, but their profits are eaten up by the mounting costs of energy and raw materials.

It's harder and harder to find a Pollyanna in the financial pages these days, or even a Pangloss. Times are tough, and they'll get a lot tougher before they get any better. On the bright side, though, it may be harder for future free-marketeers to drive us to deregulated ruin.