Sen. Norm Coleman said on the campaign trail Saturday that the $700 billion bailout of Wall Street could eventually become a boon to taxpayers and that firmer regulations might not be the answer.

A very brief look at the history of the current economic crisis betrays Coleman’s optimism.

“The government could make 10 or 20 times what it pays on this, possibly,” said Coleman at Christy’s Cafe in North Mankato.

When the U.S. economy was close to collapse following the deregulation of savings and loans, the federal government bailed out the institutions. At an initial expected cost of $500 billion, an economic turnaround staved off much of the losses with the taxpayers losing only $125 billion, a far cry from Coleman’s expectations of a similar but larger bailout.

As Jeff Fecke notes, in Coleman’s best-case scenario, the taxpayers would see a $14 trillion profit, or more than the gross domestic product of the US for all of 2007.

“Regulation’s not the only solution,” Coleman said, adding that more “transparency” is needed in financial transactions. “Our economic system is like our security system was pre-9/11. We have a regulatory system from the ’50s.”

In fact, for the past 30 years politicians, and especially Republicans, have been passing legislation to deregulate the financial industry. The conservative Heritage Foundation was ecstatic over the deregulation passed in 1999 led by former Sen. Phil Gramm, R-Texas. Gramm was Sen. John McCain’s campaign co-chair until July 2008 and remains his unofficial economic advisor. Gramm’s bill was signed into law by another fan of deregulation, President Bill Clinton.

That legislation allowed banks to make investments in the types of products that quickly lost them money — investments that were not permitted under previous regulations.

The situation is similar to the deregulation that occurred in the late 1970s and early 1980s that led to the S&L crises, much of it part of the initiatives of the Reagan administration.
James Ridgeway at Mother Jones traces the roots of the deregulation of the financial industry and how many people have signaled warnings along the way.