Placing blame for the subprime crisis has become a priority among politicians and pundits, right up there with preventing another financial meltdown.

The spread of securitization and a fall in lending standards have been easy, if hard-to-visualize, targets. But some commentators have dangled the possibility that much more tangible actors are to blame: the government and its zeal for deregulation.

"We are in a worldwide crisis now because of excessive deregulation," Democratic Representative Barney Frank of Massachusetts, the chairman of the House Financial Services Committee, recently told the Washington Post.

Particular scrutiny is being paid to the decision a decade ago to tear down the walls that had separated commercial banks from investment banks for more than six decades.

In 1999, the Republican-controlled Congress repealed the Glass-Steagall Act, a Depression-era law that forbade insurers, deposit-holding commercial banks, and underwriting investment banks to venture into one another's businesses.

The law was enacted in response to excessive speculation in the 1920s. Amid a technology boom driven by widespread electrification and industrialization, banks took on huge risks in the hope of ever-bigger payoffs. Conflicts were rife, with banks making unsound loans to companies whose shares they'd underwrite, then urging their retail banking customers to buy the stock.

The logic behind repealing Glass-Steagall was that today's more-responsible and risk-savvy financial firms could significantly reduce costs by merging redundant business divisions while giving consumers the opportunity to get all their finance needs—from banking to investing to insurance—in one place.

Deregulation did indeed foster the creation of "financial supermarkets," led by Citigroup and including J.P. Morgan Chase, Bank of America, Wachovia, and others. But critics charge that it also revived conflicts of interest that the newly freed commercial banks were unprepared—or unwilling—to manage.

It also helped some banks to become so huge and so interdependent that even staunch free-market advocates consider them too big to fail.

After regulations were rolled back, banks big and small, under investor pressure to match the returns of their most profitable rivals, couldn't help but wade into the profitable world of underwriting and trading mortgage-backed securities—the investments behind the current financial crisis.

These bondlike instruments were very lucrative, especially for the investment banks that packaged them, but they weakened the link between risk and reward. A bank could arrange risky loans to high-risk borrowers through one side of its business, then turn around and repackage the loans into pools of debt that were sold to investors on another side of the business.