As the US-incited global financial situation continues to worsen, ever shriller assertions of blame will be cast on one culprit or another. It’s my belief that any development of this magnitude always stems from multiple and interacting causes, but that doesn’t make very good copy.

Thomas Frank in the Wall Street Journal yesterday fingers deregulation (and by explicit implication the Republicans who champion it) as the criminal instigator of the financial crisis. Six weeks from election day, Frank has a transparently political goal, but let’s leave that aside. He writes:

There is simply no way to blame this disaster, as Republicans used to do, on labor unions or over-regulation. No, this is the conservatives’ beloved financial system doing es naturally. Freed from the intrusive meddling of government, just as generations of supply-siders and entrepreneurial exuberants demanded it be, the American financial establishment has proceeded to cheat and deceive and beggar itself — and us — to the edge of Armageddon. It is as though Wall Street was run by a troupe of historical re-enactors determined to stage all the classic panics of the 19th century.

I don’t pretend to be an expert in financial sector regulation, and it may well be that some more (or different? or fewer?) regulations could have played some role in averting this catastrophe. But I suspect there are a couple other causes that are equally or more important, and that call into question the contention that more government involvement will prevent such problems in the future.

1. If the crisis is in large part due to overly risky loan practices and the investment vehicles connected to them, then might the existence of federal backing (e.g., its de facto guarantee of Freddie Mac and Fannie Mae) and the promise of such backing (based on the fact of past bailouts and the belief that more bailouts might be ing) have caused or at least aggravated the problem? In other words, government involvement helped to create the bad incentives that got us here. If financial dealers had known that the market would operate in a truly free fashion, they would never have made the decisions they did.

2. If greed played a role in the creation of the crisis, which most people of every political persuasion seem willing to grant, then what is regulation to do about it? Financial whizzes are notoriously good at circumventing government regulation. If this kind of “capitalism” needs to be curbed, moral sensibility is going to make more progress than regulatory manipulation. I’m not saying that greed can ever be eliminated, just that we need to be realistic about the prospects of success for regulation, which is fraught with unintended consequences, makes life more difficult for conscientious law-abiders, and creates a drag on the economy (the last thing we need at the moment). As Sam Gregg aptly put it at the conclusion of his Acton Commentary this week: “Could there be a better demonstration that there can be no markets without morality?”