An Italian economist has finally pinpointed the cause of the recent crisis.

From the WSJ:

It was a bad weekend on the World Cup soccer field for the US and England. And a tough one for a pair of their political icons, Ronald Reagan and Margaret Thatcher, whose regulatory policies were partly blamed by a former ECB official for the recent spate of financial crises.

“The Thatcher-Reagan reforms shifted the line dividing markets from government, enlarging the territory of the former at the expense of the latter,” said Tommaso Padoa-Schioppa, an Italian economist and former member of the ECB’s executive committee, at the annual meetings Sunday of central bankers in Basel, Switzerland.

Padoa-Schioppa has three main beefs with government policies in the years before the crisis. First was a “myth” that markets could correct themselves “spontaneously.” Second, monetary and fiscal policies “fuelled imbalances and inflated bubbles.” Finally, national policies failed to address the rapid pace of globalization in financial markets.

“While the crisis seems to come from the market side of the nexus, what really went wrong is on the side of the government,” he said.

Two questions. One, does this let Alan Greenspan off the hook? Two, will Barney Frank and his cohorts take turns grilling each other in Congressional hearings now that we know it was government not the private sector that screwed up?