We're told that the main cause of the mortgage meltdown was pervasive corporate corruption and greed. The remedy, in the words of Alabama Sen. Richard Shelby, is "massive, tough regulatory reform in the next Congress."

Well, there's regulation and there's regulation. During the Great Depression, to cite one example, U.S. anti-branch-banking rules confined American institutions within regional markets, preventing banks from building strong, diversified loan portfolios.

As a result, our banks failed by the thousands. In Canada, where banks weren't economically isolated, not one bank failed. This is a clear case in which a bit of deregulation would have allowed U.S. banks to weather the storm.

In the current crisis, an accounting rule that made things worse requires that financial institutions' balance-sheet holdings be "marked to market," or valued at market prices.

Thanks to this regulation, if one bank sells an asset at a very low price, other banks must lower the value of similar holdings. One institution's lowball sales can drastically affect the capital position of others.

I don't know what the answer is on that score; banks have to have some basis for valuing their holdings. But mark-to-market clearly spread the contagion and accelerated the crisis.

These examples are a reminder that when Congress wades into this next year, lawmakers should be very humble. They have the power to make things worse as well as better. If the mood on Capitol Hill is dominated by those keen to find scapegoats, watch out.

That will be a sign we're headed for another Sarbanes-Oxley, the post-Enron overreaction that has encouraged so many enterprises to list shares outside the United States.

One area that does cry out for reform is the role of the bond-rating agencies, the outfits that look at securities and decide whether they're investment grade or junk.

In an eye-opening article in the New York Times Magazine, Roger Lowenstein detailed how experts at Moody's sifted through a pile of 2,393 subprime mortgages in 2006 and decided that bonds funded by the mortgages deserved a Triple-A rating.

That seems incredible, considering that all the loans in the pile were subprime, meaning the borrowers were people with subpar credit. What's more, 75 percent of the loans had initial teaser rates, meaning the borrowers were probably counting on refinancing fairly soon to stay in their homes. They were betting on continually rising home values. Nearly half of the loan recipients did not document their incomes.

The loans would be bought by a ghost corporation called a "special purpose vehicle," which would finance the purchase by issuing bonds. The issue for Moody's was whether the bonds deserved a Triple A rating, without which the deal wouldn't be profitable.

As Lowenstein explained, getting that rating wasn't a trick or a scam. The special purpose vehicle would issue several classes of bonds from high-quality Triple-A to low-grade Ba1. The top-rated bonds would have first call on payments from homeowners until those bonds were paid off. Then the payments would be aimed at the next-lowest bond tier.

If homeowners defaulted, the first losses would be absorbed by the lowest-level bonds, not the highest. This arrangement protected the top-tier securities and allowed them to be rated Triple-A. Based on statistical probability, most of the loans would be paid off, so it wasn't a bad bet — until home values stopped rising and the pattern of payments changed for the worse.

The ratings agencies have been forced into embarrassing downgrades. Incredibly, they worked not for the buyers, but for the sellers, a clear case of conflict of interest.

A fundamental cause of the mortgage meltdown was the attempt embodied in years of public policy to extend homeownership to increasingly marginal borrowers. In the late 1990s, politicians pressured Fannie Mae and Freddie Mac, the major buyers of such loans. Fannie and Freddie greatly loosened credit standards. Subprime lending took off.

As Congress and regulatory agencies work through these issues, the goal should not be constraining markets, but getting the incentives right so markets can work properly. That will depend on Congress going about this task with some semblance of humility, an unlikely prospect. As one blogger put it, the next bubble is likely to be in regulation.

E. Thomas McClanahan is a member of the Kansas City Star editorial board.