I might add one more thing, though many would mightily disagree with it. Years ago, every state had “usury laws”. Interest rates were capped by law. Also, bank and S&L savings rates were capped. Both were preempted by changes in federal law back in the Carter years. At that time as well, branching and acquisition laws were liberalized, resulting, it almost seemed in a “bank on every corner”. Supposedly, the public would benefit from “increased competition” in rates and the presence of financial institutions. Of course, the government declined to regulate alternative lenders and depositories like brokerages, mortgage companies and many others.
The present arrangement does allow rates to “float” with the market. And, it is believed to be more realistic than the old “usury and savings rate caps”.
Back when the caps existed, if money got tight, it got tight. It was not a matter of money costing a lot, it was simply not very available. But the “spreads” for financial institutions were largely maintained. Since financial institutions were very little leveraged then, their own loan repayments provided sufficient liquidity for operations even if new savings dried up, which it never really did.
In a pinch, banks and S&Ls could borrow from their regulatory lender entities at fairly reasonable rates, putting up loans as collateral. Those loans had to be perfect to be accepted, and “seasoned” too. Since lenders were not “on every corner”, they could be selective in the loans they made, and the amounts they would lend. Most home lenders were “neighborhood” institutions and had a pretty good grasp of what values were doing in their areas. Generally speaking, back then, there were not a lot of “whole loan sales” without recourse to the original lender, but “participations” in which other lenders would “buy” a piece of a package of loans they would then go inspect themselves. But the original lender was always on the hook if the loan went bad.
So, while it did cause credit crunches from time to time, it did not cause the wild instability we are seeing now.
There might be all kinds of reasons why financial deregulation was a good thing, and I might just not be sufficiently sophisticated to see it. But I have never seen anyone demonstrate that it actually did do anything for the economy other than make some institutions “too big to fail” and some executives tremendously wealthy.
Oddly enough, though all that deregulation was supposed to benefit the consumer through “competition”, new charter banks have been popping up like mushrooms after a spring rain. So, if all this giantism is so efficient, why can new charters do just fine with the same spreads?
Finally, in my opinion, money is not a “commodity”, though the present system treats it as one. Commodities have a finite intake capacity; that is, you can only put so much gas in your car and eat only so many steaks. There is no end to the amount of money a person can spend, so there is not a finite use for it that caps its utilization or cost.
No doubt much smarter people than I am can show me why I’m wrong. But in my opinion, we went down some wrong roads a long time ago.