Is another financial crisis on the way? We didn't learn the lessons of the last crisis. Does that mean we're doomed to repeat it?

• Author: McClaughry, John
• Position: Hidden in Plain Sight: What Really Caused the World's Worst Financial Crisis and Why It Could Happen Again - Book review

Hidden in Plain Sight: What Really Caused the World's Worst Financial Crisis and Why It Could Happen Again, by Peter J. Wallison, EncounterBooks, 356 pages, $27.99

Eight years after the nation's financial system began its rapid slide into calamity, we all know why. Greedy Wall Street operators, aided by the repeal of the 1933 Glass-Steagall Act and only feebly regulated by the Bush administration, ran wild in the pursuit of greater profits for the rich. Eventually many big banks failed and were bailed out by taxpayers. But in 2010, President Barack Obama and the Democratic Congress took bold action to create powerful new government regulatory machinery. Still, much more regulation is needed to forestall future damage.

This narrative of the economic debacle is heavily promoted in the mainstream media and by regulators. But in Hidden in Plain Sight, financial scholar Peter Wallison argues that the story is laughably false. Worse yet, he says, the true causes of the debacle have not been dealt with, and there is every reason to believe that the same thing can happen all over again.

Wallison, a co-director of financial policy studies at the American Enterprise Institute, is one of the nation's top historians and analysts of financial structure and regulation. During the early Reagan years he was general counsel of the Treasury Department, where he learned a lot about markets and regulation. Happily he was not a participant in any part of the 1997-2009 financial disaster that is the subject of this book. He was, however, a member of the largely misguided Financial Crisis Inquiry Commission of 2009-2010, and he dissented from that body's final report.

Wallison's story of the run-up to the 2007 collapse begins with the Democratic Congress of 1992 and the 1993 arrival of the Clinton administration. The same years saw the rise of onetime Clinton roommate and political operator James A. Johnson to the chairmanship of the Federal National Mortgage Association (Fannie Mae). Wallison pays little attention to Johnson's career, but Johnson worked energetically and successfully to prevent Congress from privatizing Fannie Mae after the Republicans took control in 1995. He mobilized support on the left by buying millions of mortgages that increasingly departed downward from Fannie's historic underwriting standards. This subprime mortgage purchase binge is central to Wallison's story.

Here's the quick version. In 1992 Congress set "affordable housing" goals...