TEXT OF COMMENTARY

Renita Jablonski: Hey, there is a lot of finger pointing going on these days about the causes of the financial crisis. Commentator Will Wilkinson weighs in with his thoughts.

Will Wilkinson: Is our current financial crisis the product of too little government regulation, or too much?

Advanced financial markets don’t exist in a vacuum. They operate in a framework of law that defines ownership and sets acceptable terms of exchange. Some of these markets are entirely creatures of government.

The market in treasury securities, for example, is key to Washington’s ability to control the money supply. And the market in mortgage-backed securities — ground zero of the crisis — began in earnest when the government under Lyndon Johnson started pooling home loans into securities and selling them off to investors.

We all know the current mess was triggered by a speculative bubble in home prices. And the origins of the bubble are familiar: easy money, meaty tax deductions for homeowners, and relaxed lending standards.

But let’s not forget the market for mortgage-backed securities. It took the highly risky form it did because the government created entities like Fannie Mae and Freddie Mac and gave them certain regulatory advantages. Government policy created market incentives that helped lead us toward disaster.

One lesson of the crisis is that ours is hardly a “free” market system. The American economy is a byzantine amalgam of market and state institutions enmeshed in a thicket of regulation. When part of it goes bust, it’s too easy to pin the whole blame on market failure. A market is only as stable as the regulations that define it.

We don’t need more regulation or less. We need better regulation. But who will give it to us? Technocrats, like Ben Bernanke and Henry Paulson? Congress? Our fearless lawmakers on Capitol Hill did very little to alter Paulson’s initial two and a half-page plan — other than to add 450 pages of pork.

The real question now is not whether we need more regulation or less. It’s whether our political process can deliver the right regulation. I’m not getting my hopes up.

Jablonski: Will Wilkinson is a research fellow at the Cato Institute.