Greg Mumford wrote a fabulous analysis this morning in the AFR pointing to the similarities between the current US market maladies and those sparked by the Savings and Loans crisis in 1990.

According to Mumford the 1990 domino-like collapse of over 1000 financial institutions, cost the US economy $125 billion, or about 3 percent of GDP, and precipitated a 20 percent decline in the value of the stock market.

Similarly the mass foreclosure on poorly drawn loans in the US, will come at an estimated cost of $400 billion, or a shade under 3 percent of US GDP, and has precipitated a 20 percent decline in the value of the stock market.

(it's being called the credit crunch, but that sounds to me like something you eat, while this is a market shift which is eating houses, or at the very least turfing people out of houses)

Predictably all the other elements also fall into place; oil prices are at record highs, consumer confidence is swan diving, the US dollar is tanking and a range of financial institutions are looking wobbly.

Rather than pulling up stakes and heading for the hills, Mumford suggests the 1990 crisis lead to a ten-year bull market, and that investors facing the current market should in fact be looking to get in and buy into companies with a good long-term outlook which are currently undervalued.

However, with big names like UBS this week doubling it's forecast losses, and an ongoing lack of certainty surrounding the actually extent of the losses overall, predictions of the ultimate cost the US economy continue to grow.

There's US$11 trillion in outstanding mortgages in the US at the moment, and no one's come out with a clear figure of how much of this debt is in question.

Still, Mumford's assertions offer an appropriate individual response to the market maladies, however, at a national level perhaps we should be looking at different tactics.

In 1990 that grand old man of economic theory Kenneth Galbraith was scathing in his attack of lack of regulation of the finance sector, and the extent to which this contributed to the disaster.

And the very same criticism could, and has, been levied at a finance system which allowed millions of loans to be written which would never be paid.

The long term lessons to be learnt is that governments simply can't let any sector of the economy off the hook. All companies are created to make money, and most do so in a fairly short sighted fashion, unless there are market mechanisms which force them to take a longer term view.

In a bull market it's hard to fight the natural inclination to introduce work practices to encourage rapid growth. It's all the same moral hazard stuff we saw during the dot.com bubble, sales bonuses based on overall loans signed, staff being asked to hit stupid sales targets rather than focus on slower, more solid, growth.

And there's only one way to stop it: government regulation.

Just like in the 1990's Savings and Loan crisis, the 2008 bad-debt crisis has been preceded by a decade of so called "business friendly" government, which has systematically cut back on the regulatory powers of those organisations charged with corporate oversight.

Mumford's right, based on past experience, the results are predictable.

I just wonder if we'll learn our lesson. While we're not quite as daft as the US voting public, and not quite as ready to vote in the solution which looks easy, over a more constrained, regulated approach, we've ourselves been sucked in by the deregulation hard sell which periodically rasises its head.

So next time some sell-out politician hits the podium calling for extensive market deregulation perhaps rather than sending them into office, we can send them back to the history books.