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Don't Blame Deregulation For This Crisis, It's All About Lack of Regulation [View article]
The blogosphere is not paying enough attention to the point that there were so many willing buyers and sellers of subprime ABS paper, regulation or no regulation.
This point has been addressed by a couple of academic papers:
-- S. G. Ryan, NYU Stern School: Accounting in and for the Subprime Crisis (March 2008)
-- M.G. Crouhy, R.A. Jarrow and S.M. Turnbull: The Subprime Credit Crisis of 07 (July 2008)
Both are available from www.ssrn.com.
These papers make the point that while traders were binging on the arbitrage between AAA and BBB subprime ABS tranches, the credit agencies themselves were implicitly producing a pro-cyclic effect by relaxing collateral during times of high House Price appreciation (HPA) and tightening during low HPA. The 20 Case-Schiller Index shows a significant difference between the last cycle (80's to mid-90's) and the current one.
www2.standardandpoors....