It is often claimed that the disaster was produced by deregulation. What deregulation you may ask?
Well, mostly, the dismantling of Glass-Steagall. I don’t think dismantling Glass-Steagall caused the crisis, but it is undeniable that if Glass-Steagall had remained in effect, the crisis would have been far less severe, for Glass-Steagall restrained financial institutions from being too big to fail. It was the biggest institutions, the institutions too big to fail, that behaved the worst, and lost the largest proportion of the assets they managed. Glass-Steagall also prevented financial institutions from all being “diversified” in exactly the same way, which “diversification” is not very diverse at all.
So why, and how, was Glass-Steagall dismantled? It was dismantled by being replaced and superseded by Basel II. Glass-Steagall consists of seventeen pages, that a competent person can, with some effort, comprehend. Basel II consists of thousands of pages, no one knows how many, and no one person knows more than a tiny fraction of what is in these thousands of pages.
That is “deregulation”.