Is deregulation to blame? The new Washington consensus says "yes." The facts on the ground say something different.

• Author: Mangu-Ward, Katherine

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You MIGHT NOT BE able to tell by looking at it on the page, but deregulation has become a four-letter word in Washington. In October's vice presidential debate, Sen. Joe Biden (D-Del.) practically spat it out: "If you need any more proof positive of how bad the economic theories have been, this excessive deregulation, the failure to oversee what was going on, letting Wall Street run wild, I don't think you needed any more evidence than what you see now." Speaker of the House Nancy Pelosi (D-Calif.) echoed the sentiment in her floor speech before the first vote on the bailout bill: "It's really an anything-goes mentality. No regulation, no supervision, no discipline."

In reality, regulation as a whole has thrived under President George W. Bush. Between 2001 and fiscal year 2009, the federal regulatory budget increased 69 percent in real terms, to about $17.2 billion. (For more see "Bush's Regulatory Kiss-Off," page 24.)

But what about Wall Street in particular? What specific acts of deregulation are being blamed for the financial crisis, and what role if any did they play? Let's look at the accusations one by one:

1) The partial repeal of the Glass-Steagall Act in 1999 allowed commercial banks to get involved in risky investments, such as mortgage-backed securities.

The Glass-Steagall Act of 1933 prohibited investment banks from acting as commercial banks, and vice versa. Signed by Bill Clinton (who continues to defend the legislation), the Gramm-Leach-Bliley Act of 1999 repealed those aspects of the law. Many on the left blame at least part of our current woes on that move. With the repeal, Barack Obama said in a March economic address, "we have deregulated the financial services sector, and we face another crisis."

In fact, multiple exemptions to Glass-Steagall had been granted for years before Gramm-Leach-Bliley was signed into law. Most European financial markets, not normally known as more "deregulated" than the U.S., never separated commercial and investment banks in the first place. And there is no correspondence between institutions that benefited from the repeal and those that recently collapsed. Institutions that didn't take advantage of the Glass-Steagall repeal, such as Lehman Brothers and Bear Stearns, were the ones that failed most spectacularly, in part because they lacked the stability provided by commercial banking deposits.

If anything, Gramm-Leach-Bliley may have softened the blow. The George Mason...