I’m starting to wonder if I’ve slipped into Tim Kaine’s parallel universe here.
I’m seeing a whole slew of blogs about how the current Wall Street festivities are “the end of the free market,” or similar nonsense. Bacon’s Rebellion and Too Conservative (just to name two) are declaring this to be a dramatic turning point towards some from of benevolent big-government economics and away from the nasty and brutish free market. I don’t think I need to tell you what the leftosphere is saying.
To all of you out there who are convinced this is a 1929-like moment, or the day of the great Keynesian Comeback, I have one simple question.
Are you high?
The housing bubble that sparked this little blaze had two major causes – both of which were government interventions in the market. The first great push was a subsidy – first explicit, then implicit – which lasted for seventy years in the form of Fannie Mae and Freddie Mac.
Until 1968, Fannie Mae was a government agency that subsidized and drove up home demand. After 1968 Fannie Mae and Freddie Mac were in that twilight zone reserved for Government Sponsored Enterprises – entities that look like private firms but have the government’s ultimate backing. As a result, home demand (and home building) continued to be inflated for decades, largely because the foundation of the housing market was not the reasonable decisions of homeowners and banks, but two Washington-created behemoths that were expected to absorb all the economic toxic waste of the market because the government would bail them out in the end.
One can call this many things; a free market is not one of them.
So, having seriously discounted the risks of questionable lending, the government proceeded to mandate them under the Community Reinvestment Act in 1977. Riley at VV has the gory details, but suffice to say, it was once again a government intervention that led to riskier loans that could (and did) come a-cropper.
We all like to remember the “good old days,” when banks were solid institutions run by reasonable and intelligent people who reacted to the economic realities of the world with prudence. What we don’t realize is the reason that seemed so prevalent back then instead of now: the government wasn’t making it easier – and then mandatory – to do stupid things.
The free market did not wreck Wall Street; it was banished from the housing market seventy years ago. The government wrecked Wall Street, and anyone who doesn’t see that is either willfully or spectacularly ignorant.
Rather than lament (or gloat) over the “end” of the free market, why don’t we actually try starting the free market this time? It couldn’t have done any worse than the government did.
Some of us on Bacon’s Rebellion are arguing against the hype, hysteria and histronics.
I should have noted that BR (and TC, for that matter) are group blogs.
Thanks, JAB.
Ed Morrissey at Hotair wrote up a nice summary as well.
I am not a huge fan of regulation, but some is absolutely neccessary. I guarantee a totally free market would be manipulated and gamed by some real scummy characters to the detriment of all.
“[T]here is the need to challenge the sovereignty of national regulators—why should the rules of lending in the U.S. be left to U.S. regulators when the consequences go everywhere?”
Free market? What a revolutionary idea. Too bad this is 2008, not 1778.
http://www.thetrumpet.com/index.php?q=4208.2381.0.0
Spot on! Another real problem is the increasingly complex financial instruments. I am an economist (by training) and my wife is a securities lawyer. Even together, we can’t figure this stuff out. Good luck to the “Average Joe.”
How bout this, meet me in the middle. I give you “true” “free market”, but take away all the limited liability and sub-companies protect the government extends to you, so you run true business risk too and I create a parallel federal banking system. So, people would have the choice – high risk, high yield or low risk low yield. What do you say? Any takers?
My guess is no one will, b/c capitalist hide in corporation that hide in governmental shielding. (High Profit, Low risk). Many talk about free market, but they don’t really want the risk that comes with it.
A man commits a crime, theft, lets say. He walks into a store palms an item, walks out. If he is caught he goes to jail.
A corporation overvalues their costs of materials, tax evasion – theft of the government funds essentially, but used a sub-company for distribution of materials. If they are caught – the gov’t has to link the sub-companies actions to the parent company, but first they must try the sub-company separately. If they are caught, the parent company may or may not face charges, because it is very difficult to, without a shadow of doubt, determine the motivation the parent company in absolute terms, therefore they rarely have to worries about being caught.
Conversely,
The man at the store, does not have the same security that the blame for his crime will be squarely placed on the hand that palmed the item, b/c it is readily determined that he and his hand acted and committed the crime together.
This is unequal justice. I don’t mean the man should be tried separately from his hand, that’s silly, but there should be no double standard where corporation get a shield between them and the full force of the law, no sub-companies, ever.
So, again any takers?
I agree we haven’t seen a truly free market yet and I hope we never do. This current crash is the perfect piece of evidence for my case. What are the banks doing with the money they have gotten from us so far? Are they making credit more available like we were told they would? no. They are paying themselves off very well, we will see another huge bonus season this year paid with taxpayer money. Why? Because “free Marketers” are in business to get rich and nothing else. Bush W has demolished the walls of regulation to these huge corporations and look at them now, “freely” begging for handouts while enriching themselves. We need a regulated market much more so than ever before, we need to say to CEO’s and other executives that it’s ok to make lots and lots of money… if you do you job well, if we can clearly see that you are employing well and pay all your taxes without seeking shelters all over the globe.
We’ve given away the store and have barley asked any questions it’s no wonder they want more. Government is to blame for this, they gave a blind eye under the false assumption that keeping the “old money” happy would keep the economy growing. And this has been evident for a long time now with all the “out sourcing” and dissolving trade tariffs we haven’t seen one single CEO say “it’s important that we keep our work force in the USA” no. In the “interest” of their stock holders they must take advantage of these free market gifts and virtually chop the legs out of our economy effecting everybody including their stock holders. Well this is big money walking away with the kitchen sink. It is a sad day for the country that was to be of the people by the people and for the people.
Actually, Bill Clinton did with the removal of the Glass-Steagall Act.