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This past week, the country sat in awe as the financial institutions of Wall Street tumbled into bankruptcies and takeovers. Lehman and Merrill Lynch are gone as we know it. AIG, once the world’s 18th largest corporation, is about to be owned by the government, effectively nationalizing much of the insurance industry. The surviving financial institutions sat around the remains to reluctantly begin cannibalizing their peers in the form of easily-digested portfolios. The US government stood on the sidelines heaping great mounds of tax-paid monies where they could to ensure the banking system didn’t collapse upon itself. To hear the possible outcomes — “world-wide economic collapse,” “day of reckoning,” and “probably once-in-a-century type of event” — is to imagine a future where we drive through modern-day Hoovervilles and surf the internet while sipping our hobo soups.

While the world stands on the brink of a second Great Depression, there is little doubt that the mortgage / credit / banking crisis is a market failure of historic proportions, a clear instance where self-interested capitalism led to systemic catastrophe. One response is that regulation is still unnecessary and that the current debacle is the result of overzealous, immoral greed. Such a cop-out is a reflexive answer that smacks of blind ideology. The mortgage crisis is textbook example No. 1 of the problem with unrestrained free markets. To hear John McCain claim that “selective” regulation is all that was required to the control the avarice of business’s captains of industry demonstrates his tunnel-vision of the crisis. The presidential candidate is resorting to stale GOP ideas toolkit with a minimal analysis of the situation and a lack of historical context.

I may not be old enough, but the leaders of our country and of Wall Street should remember the last time this happened. (After all, it happened in their generation.) I’m talking about the Savings and Loan scandal in the 1980s that brought down hundreds of banks and last prompted the government to hand bailouts around like candy. The blatant amnesia of business and government shows that our institutions do not know how to learn for the mistakes of the past.

I am definitely not old enough, but in 1979 Chrysler also needed a cash infusion to stay afloat whilst fending off highly sought-after foreign cars. The bailout was so the domestic auto industry could get back on its feet after Japanese manufacturers lapped the Big Three. The Asian companies did so by producing cheap, fuel-efficient cars using a new powertrain configuration called “front-wheel drive.” Funny enough, Detroit’s finest are lobbying Capitol Hill again today for $50 billion dollars of federal loans so that they can retool their auto plants for a new powertrain configuration to produce cheap, fuel-efficient products called “hybrid cars.” Just don’t call them subsidies.

The American consumer is not blameless in this mess. We borrowed money on credit for nearly two decades, first on our credit cards. Only by upgrading to ransacking home mortgages were we able to finally break the system. This time, though, globalization has tied much of our money into little pools across the world, from foreign sovereign wealth funds to the Chinese banks. Those firms are just as scared that their “investment” in the American dollar will be worthless as we are. Any contrarian talk of “decoupling” — that the world economy is becoming independent of American economy — will do little to soothe the worries of European and Asian central bankers. As the cliche goes, “When America sneezes, the world catches cold.”

Whose fault is this and how much of this is the result of the government? I’m willing to concede no one might ever know. In fact, it could be none of the government’s fault and a mere expression of zeitgeist. Doubtless there will be studies and statistics placing the blame upon along a great chain stretching from the workaday traders on one end and the Commander-in-Chief on the other, with everyone in between, including investment banks managers, hedge fund kiddies, the Fed Chief, our Treasury Secretary, and ghosts of Greenspan’s past. Our economic system is simply too sprawling and far-reaching for any single person to ever acquire a clear snapshot at any given time, a consequence of expanding free trade but perhaps not in our interest.

So how do we manage that public interest? The car companies need mandated fuel efficiency standards so that they don’t sell SUVs all the way to their (and our) demise. In the same way, the mortgage, securities, and credit industries need rules to ensure financial companies don’t hand out credit to the wrong consumers in spite of the desires of both sides of the transaction.

In other words, we must regulate the hell out of it. Government regulation is how the personal, profit-maximizing activities of a few traders or executives don’t destroy the profit-maximizing activities of everyone else in the modern world. To those of the economics persuasion who cry “inefficient,” let me ask: how efficient do you think Detroit and Wall Street are right now? Right now, government officials are merely putting their fingers in the dike and performing triage by bailing out companies. The next step is to crack down with the full might that is the American government. That way, car companies won’t forsake the long view and banks will stop recklessly bloating their quarterly statements. Anything less and we’re doomed to repeat our sad past.

Gary Shu is a graduate student in the Engineering Systems Division.