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So what explains this foolish decision? What explains the power of these deregulatory ideas? Even Alfred Kahn, the architect of the very first deregulatory initiative during the administration of President Carter, could only shake his head decades later at the race to financial deregulation. Banks, he insisted, “were a different kind of animal…. They were animals that had a direct effect on the macroeconomy. That is very different from the regulation of industries that provided goods and services…. I never supported any type of deregulation of banking.”50 So why did everyone else, including supposedly progressive Democrats?

There is no simple answer. As I’ve argued, the ideology of deregulation flowed for many as a matter of principle. Alan Greenspan, for example, truly believed that markets would take care of themselves, that even regulations against fraud were unnecessary. Greenspan was wrong. He admitted as much. But he was not being guided by an improper dependence upon money. These were the beliefs of a true believer at work. They were not the beliefs of a hired gun.

And not just Greenspan: there were plenty in the army of financial deregulators who were true believers, not just mercenaries. It may well be, as John Kenneth Galbraith puts it, that “out of the pecuniary and political pressures and fashions of the time, economics and larger economic and political systems cultivate their own version of truth.”51 But these “versions” are still experienced as “versions of the truth,” not outright fraud. “No conspiracy was necessary,” as Simon Johnson and James Kwak put it in their 2010 book, 13 Bankers: “By 1998, it was part of the worldview of the Washington elite that what was good for Wall Street was good for America.”52 As Raghuram Rajan writes, “Cognitive capture is a better description of this phenomenon than crony capitalism.”53

Still, pure ideas are not the whole story. Not by a long shot. The campaign to deregulate the financial services sector was a campaign, even if it was also an ideology. When it began, none could have thought it would succeed. But soon after it began, as I describe in chapter 9, both Democrats and Republicans alike became starved for campaign funds. And as that starvation grew, both parties, but the Democrats in particular, found it made both dollars and sense to believe as the ideologues of deregulation told them to believe. It paid to believe. And that made believing easy. As the Financial Crisis Inquiry Commission put it:

As [this] report will show, the financial industry itself played a key role in weakening regulatory constraints on institutions, markets, and products. It did not surprise the Commission that an industry of such wealth and power would exert pressure on policy makers and regulators. From 1999 to 2008, the financial sector expended $2.7 billion in reported federal lobbying expenses; individuals and political action committees in the sector made more than $1 billion in campaign contributions. What troubled us was the extent to which the nation was deprived of the necessary strength and independence of the oversight necessary to safeguard financial stability.54

We could map this change simply by tracking the rise of certain members of the Democratic Party. New York senator Charles Schumer is an obvious example. “Over the five election cycles from 1989–90 to 1997–98, Schumer raised $2.5 million in contributions from securities and investment firms—more than triple the haul of the runner-up in the House.”55 Schumer’s “success,” as Jacob Hacker and Paul Pierson describe in their 2010 book, Winner-Take-All Politics, “was part of a major development in the evolution of the Democratic Party’s finance: a big push to gain support on Wall Street.”56

The money began to flow, and not just to the Democrats. As Johnson and Kwak describe, “from 1998 to 2008, the financial sector spent $1.7 billion on campaign contributions and $3.4 billion on lobbying expenses; the securities industry alone spent $500 million on campaign contributions