But, alas, the state protections were overruled by the Office of the Comptroller of the Currency, which gave national banks a pass and said they didn’t have to comply with those laws. And guess what happened next.

States that adopted tough anti-predatory lending laws had lower foreclosure rates than states without those laws, according to a new study conducted by the UNC Center for Community Capital.

In addition, after 2004, when the federal government exempted national banks from state anti-predatory lending laws, national banks increased their subprime lending the most in states with those laws. After this loophole opened in 2004, national banks made riskier loans, especially in states where other lenders remained subject to strict anti-predatory lending laws.

These conclusions suggest that when state laws did apply, the laws did a better job of promoting quality lending.

This study is a perfect reminder, as Congress and the administration tackle financial regulatory reform, that not all regulations are onerous, anti-business, and aimed at choking off financial innovation. And it’s more evidence that borrowers buying beyond their means weren’t the only only players in the subprime mess.

The same banks that found their way around these state anti-predatory laws are the ones getting government bailouts, and financial incentives to modify loans. And bonuses for top employees. The  study is an important reminder of their motives and behaviors during the housing boom, at a time when those same banks are lobbying against new reforms.

The Senate Finance Committee took a step to remedy that this morning, approving the nomination of former Clinton administration attorney Neal Wolin to become deputy secretary of the Treasury. You remember Wolin: A decade ago he helped then-Treasury Secretary Larry Summers — who’s now the top economic advisor to President Obama — draft the successful deregulations that blurred the lines between commercial banks, insurance companies and investment houses — a move that many experts say paved the way to the current economic turmoil.

So lawmakers are concerned about his judgment, right?

Wrong.

The vote on the Finance panel was unanimous. Here’s the statement from Finance Chairman Sen. Max Baucus (D-Mont.):

The Treasury Department has a colossal task in its management of the economic recovery. Secretary Geithner and other Treasury officials need support now in their efforts to stabilize markets and get capital flowing for American families and businesses. It’s our job to make sure the right nominees get up and running as soon as possible. We’ve taken the first step today in Committee, and I look forward to congratulating to Mr. Wolin on full Senate confirmation soon.

Sounds like he’ll fit in fine.

But it wasn’t always this way, as Thomas Frank reminds us today in a Wall Street Journal opinion piece. Frank reviews the history of the Pecora Commission, a congressional panel that investigated bank misdeeds during the Great Depression. Its findings were used to create new laws to curb financial industry abuses that kept banks in check for decades, until many of those regulations went out the door, beginning in the 1990s.

In the course of its investigation, the Senate Banking Committee, which brought on as its counsel a former New York assistant district attorney named Ferdinand Pecora, heard testimony from the lords of finance that cemented public suspicion of Wall Street. Along the way, the investigations formed the rationale for the Glass-Steagall Act, the Securities Exchange Act, and other financial regulations of the Roosevelt era.

Frank, author of “What’s the Matter with Kansas?” writes that the idea of a new Pecora Commission is catching on, at least on the left. But it’s not likely it will become a reality. This time around, Congress would have to investigate itself — and its role in paving the way for the deregulatory zeal that is cited as the source of many of the financial system’s problems today.

The crisis today is not solely one of bank misbehavior. This is also about the failure of the regulators — the Wall Street policemen who dozed peacefully as the crime of the century went off beneath the window.

We have all heard the official explanation for this failure, that “the structure of our regulatory system is unnecessarily complex and fragmented,” in the soothing words of Treasury Secretary Tim Geithner. But no proper Pecora would be satisfied with such piffle. The system was not only complex, it was compromised and corrupted and thoroughly rotten even in the spots where its mandate was simple.

After all, we have for decades been on a national crusade to slash red tape and stifle regulators. Over the years, federal agencies have been defunded, their workers have grown dispirited, their managers, drawn in many cases from antiregulatory organizations, have seemed to care far more about industry than the public.

Frank also points out the difficulties of investigating how the free market philosophy of the Bush administration went too far:

Consider in this connection the 2003 photograph, rapidly becoming an icon of the Bush years, in which James Gilleran, then the director of the Office of Thrift Supervision (it regulates savings and loan associations) can be seen in the company of several jolly bank industry lobbyists, holding a chainsaw to a pile of rule books. The picture not only tells us more about our current fix than would a thousand pages about overlapping jurisdictions; it also reminds us why we may never solve the problem of regulatory failure. To do so, we would have to examine the apparent subversion of the regulatory system by the last administration. And that topic is supposedly off limits, since going there would open the door to endless partisan feuding.

But as Frank notes, Republicans alone aren’t to blame. It was former President Bill Clinton and his Treasury Secretary Larry Summers who pushed for the measure that overturned Glass-Steagall’s separation of investment from commercial banking.

Given all this, what are the chances that Republicans and Democrats will join hands to probe what went wrong during the financial crisis, and then work together to craft purposeful regulations to make sure another crisis never occurs? Pretty much nonexistent.

Based on the cramdown experience, banks are rolling over Congress already. It’s as if the Pecora Commission is already just a distant memory. The lack of action by Congress to figure out what really went wrong, and to take steps to fix it, will be the enduring scandal of this financial crisis.

Appearing before hundreds of business officials in Washington, Larry Summers said the finance industry has evolved both enormously and unpredictably since he urged those changes as Treasury secretary for President Clinton in 1999.

“I think the world has changed in very profound ways since the 1990s,” Summers said.

In November 1999, Congress passed the most sweeping changes to the finance industry since World War II. The bill, known as the Gramm-Leach-Bliley Act, repealed part of the 1933 Glass-Steagall Act, in effect blurring the boundaries between commercial banks, investment banks, insurance companies and securities firms.

At the time, Summers was a leading cheerleader for the bill, applauding its passage in no uncertain terms. ”Today Congress voted to update the rules that have governed financial services since the Great Depression and replace them with a system for the 21st century,” he said at the time, according to The New York Times. ”This historic legislation will better enable American companies to compete in the new economy.”

Others weren’t so sure. Sen. Byron Dorgan (D-N.D.) said after the vote that “we will look back in 10 years’ time and say we should not have done this,” while the late Sen. Paul Wellstone (D-Minn.) warned that lawmakers ‘’seemed determined to unlearn the lessons from our past mistakes.”

No matter. The bill passed the upper chamber by a vote of 90 to 8, and Clinton signed it into law shortly thereafter.

A decade later, many of the nation’s top economists say the current recession is largely a consequence of that law, which freed commercial banks to dabble in more risky investments, like mortgage-backed securities, while empowering the largely unregulated non-banks (think: AIG) to get into the mortgage lending business.

Summers said Thursday that that was a different era — a time when credit default swaps “were a blip” and “very few people” predicted either their meteoric rise or the degree to which an overexposure to those complex products could harm the larger economy. In the finance environment of the late 1990s, he said, the deregulations made perfect sense — just as they wouldn’t make sense today.

“You have to think about how the different parts interact,” Summers said. “That’s how you get to the best possible policies.”

Earlier this week, we heard the world’s best salesman of socialism address the nation.

DeMint assured the audience that “free markets and deregulation did not wreck our economy,” and that education failure was the fault of “the federal government and our courts.”

Norris took note of this comment:

I believe this — the phrase “burdens of the office” is overstated. You know, it’s kind of like, why me? Oh, the burdens, you know. Why did the financial collapse have to happen on my watch? It’s just — it’s pathetic, isn’t it, self-pity.

As Norris points out, Bush views the financial crisis as an act of God, and seems “to have given no thought to the role his administration’s policies played in creating it.”

I don’t recall the Bible preaching the gospel of deregulation, or Jesus directing federal regulators to overrule state predatory lending laws that would have put a halt to abusive subprime mortgages. I think God is busy with wars, diseases and famines, and he probably wasn’t all that interested in blessing Countrywide as it churned out high-rate loans to people with less than perfect credit.

For Bush to acknowledge no role here goes beyond dishonest. He’s still the leader of the country. Couldn’t he have taken this opportunity to urge us all to have a thoughtful conversation on both the advantages and the limits of home ownership — or to  guide a discussion on how to encourage homeownership while ensuring it can be sustainable? Since World War II, attaining homeownership has been the American Dream, but if this crisis has taught us anything, it’s that we must rethink that goal — or at least reshape it. It’s a huge task ahead.

But we got nothing from him, other than events were out of control, and he doesn’t feel sorry for himself. That’s nice, for him, in a self-help sort of way. The rest of us adults have work to do, to get the country back on track.

If Bush is looking for a legacy in the way he handled the financial crisis, he found it on Monday: Don’t look at me.

We are not going to be hampered by ideology in trying to get this country back on track. We want to figure out what works [...]

If you can show me something you are doing that’s working, or if you tell me that this program or this regulation is hampering us from doing smart things that will advance the interests of our state, then you’re going to get a ready ear. [Emphasis added.]

The remark drew applause from many of the governors, who probably can name a few environmental regulations or worker protections unpopular with business interests in their states.

But while the comment is surely less popular with liberal activists, they can probably take comfort knowing that Obama has a 96 percent lifetime rating from the League of Conservation Voters and drew broad support from labor unions during the primaries, as well as the general election campaign.

While he may be willing to listen to the governors and open to some changes, it seems unlikely that he would turn his back on the concerns of these core Democratic constituencies.

It happened today, and some supporters of Sen. Barack Obama hope the new wave of broader federal regulation will spill over into the health-care debate.

In an ad in today’s New York Times, the Institute for America’s Future, a liberal watchdog group, warns that Sen. John McCain’s health-care plan might do for patients what deregulation of the finance industry has done for homeowners and investors.

“Will we let conservatives do to health care what they did to banking?” the ad’s headline asks.

The reason for the concern?

McCain’s plan deregulates the private insurance industry by allowing the purchase of plans across state lines. Consumers could sidestep some state laws mandating more comprehensive — and more expensive — coverage. But that feature would also undermine state efforts to implement the mandates so the risk can be better spread among sick and healthy residents.

McCain’s health plan also permits insurers to continue the practice of refusing coverage to patients with pre-existing conditions.

And McCain’s plan calls for eliminating the income-tax exclusion that currently benefits those receiving employer-sponsored health coverage. Instead, it would offer a flat tax credit ($2,500 for single filers and $5,000 for families) for those who get insurance through their employers or buy plans on their own. The Lewin Group, a non-partisan consulting firm, estimated that this would reduce employer-sponsored coverage by 9.4 million people.

The result, according to Institute for America’s Future, would be that the health care of Americans — 46 million of whom are currently uninsured — would be placed “at the mercy of the same profit-driven companies that got us into this mess.”

McCain hasn’t done himself any favors on this front.

Writing for the September/October issue of Contingencies magazine, the GOP presidential hopeful pitches his health-reform plan by lauding the benefits of deregulating the finance industry.

“Opening up the health insurance market to more vigorous nationwide competition, as we have done over the last decade in banking, would provide more choices of innovative products less burdened by the worst excesses of state-based regulation,” he wrote.

As we reported earlier this week, health care reform will be tough in any environment.

But McCain’s strategy seems particularly unfit for this anxious new world.

As it turns out, McCain may not be as “fundamentally a deregulator,” as he likes to claim.

The Arizona senator embraces his party’s popular critique of government, frequently invoking the deregulatory rhetoric that has helped Republicans win five of the last seven presidential elections.

But when a crisis or scandal makes headlines and sparks a public outcry, McCain is among the quickest in his party to call for robust government intervention…

It is unclear if a McCain administration would be led by the small-government crusader who claims President Reagan as his touchstone, or the energetic regulator who once advocated a new federal agency to license professional prizefighters.

Levy offers a laundry list of examples in which McCain has gone to bat for the consumer and pushed to increase the government hand in the marketplace.

He has repeatedly taken on the auto industry on safety issues, airlines and Big Tobacco. However, Levy also cited a number of cases in which the need for federal intervention was less well-defined. There were the high-profile hearings on steroid use in Major League Baseball, as well as:

McCain wanted to regulate when broadcasters could air violent programming and how boxing matches should be scored.

In one unusual bid to expand government authority, McCain introduced legislation in 2003 to control how broadcasters cover elections. Under McCain’s proposal, broadcasters would have been required to air two hours a week of candidate- or issue-centered programming and to offer political candidates the lowest advertising rates.

Clearly, there is a need for government regulation in many industries.

But, as his downright populist reaction to the current financial crisis has made clear, McCain’s preference for involving the state may be based less on principle than he would like the laissez-faire crowd to believe — and more on which way the political winds are blowing.

Biden, as well as Sen. Barack Obama, was introduced by Denise Ilitch, former president of a company that managed the Detroit Red Wings. She is “the first lady of Hockey,” Biden told the crowd. Ilitch gave both Biden and Obama Red Wings jerseys, and said the Democratic ticket would be as successful as the local team — which won the Stanley Cup last year.

After warming up the crowd, Biden went from jocular to scolding. He blasted Sen. John McCain for being disingenuous and out of touch on the economy. “John didn’t see the light, John saw the polls,” Biden said, recounting how McCain lurched from pushing deregulation to supporting stricter financial regulation and oversight on Wall Street.

Turning to national security, Biden knocked McCain for pledging to follow Osama bin Laden to the gates of hell. “He does not live in Iraq,” Biden said. He promised that an Obama-Biden administration would target bin Laden in the mountains of Pakistan — and actually “send him to hell.”

Pursuing terrorists in Pakistan is an issue for both campaigns this weekend. Sen. John McCain walked back a statement by Alaska Gov. Sarah Palin that appeared to support Obama’s aggressive stance on crossing the border to pursue terrorists when Pakistan will not.

Obama with Sen. Carl Levin (MI) on a trip to Michigan this month. (Credit: Obama Flickr)

When Obama took the stage, he reprised the hockey theme, asking supporters if they had any extra tickets for the coming season. Then, leaning forward over the lectern, Obama emphatically waved a voter registration card, urging the crowd to register their friends in a push for the final week of registration in Michigan. The Obama campaign indicated that it had 20,000 registration forms on hand.

Speaking from a teleprompter, Obama delivered his post-debate stump speech, which hammers his priorities for the bailout plan and chastises McCain as a latecomer to Democratic solutions to the financial crisis. “You can’t make up for 26 years in 26 days,” Obama said, urging voters to scour McCain’s record serving the causes of deregulation and corporate America.

Rebutting McCain’s debate line about Obama’s inability to understand the issues, Obama boiled down the point. “No I understand — you want more of the same.” The Democratic nominee continued, “eight years of this nonsense is enough,” relentlessly pressing his case that McCain is a Bush clone.

McCain’s response to the financial crisis, Obama added, was “Katrina-like” — reflecting a stunning lack of awareness, let alone urgency, in tackling a crisis for regular Americans.