Kirkland Reporter

Capitalism didn't cause crisis

Mar 18 2009, 2:57 PM · UPDATED

Many think unfettered capitalism caused this economic crisis. Au contraire, it was over-regulation and subsidy that caused the housing bubble and bad loans.

The following three causes of this recession resulted from fettered capitalism, not unfettered:

1. The Federal Reserve Bank held interest rates artificially low, incentivizing riskier loans that the market - if left alone with interest rates fluctuating freely - would not have allowed.

2. The Community Reinvestment Act (under Clinton) subsidized banks making home loans to risky buyers - ones who in the free market, wouldn't have gotten loans.

3. Fannie May & Freddie Mac got government favors and affiliation that said to the private sector, "make risky loans because we'll guarantee them if they go bad." This only encouraged risky loans.

Government, not the free market, was the cause of this crisis. The free market has natural shock absorbers built into it (to reduce boom and bust), but government regulations, subsidies and meddling disable them.

Jeff E. Jared, Kirkland