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
1 comment:
Kirkland Reporter
Capitalism didn't cause crisis
Mar 18 2009, 2:57 PM
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.
This is really two points-- that the FRB held rates below
whatever the would have been without any FRB, and, that low
interest rates somehow incent lenders to approve loans
involving greater risk. Both points are offered without
supporting logic or evidence, and although it is not the
readers' job to tell the author these things, I just want to
tell you I have to discard the first paragraph and normally
would stop reading here, but for the fact that you're a
neighbor I've spoken with over the years.
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.
Well, since you mention Clinton I automatically assume that
your project is more about dissing the Democratic Party and
elevating the Republican party. But anyone would agree, the
CRA was a market intervention to get more low income families
into homes-- it was social policy.
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.
I think there is unanimous consensus that the state enterprises,
FMNA, FHLMC and sallie mae, as well as the banking industry in
general, got favors, protections, etc. completely as a result of
government protection.
Government, not the free market, was the cause of this crisis....
That is such a giant leap, it's almost a non-sequitur. First
of all there has never been any "free market" in the financial
sector in the U.S. or anywhere else, as far as I can see. But
you'd have to define your terms. What possible use can come
of your rhetoric, which boosts a word "Free Market" dereft of
meaning or principles? You're just playing into the hand of
state propaganda-- the exact people who are manipulating our
econnomy-- by bolstering these undefined words. You're leading
people into emotionalism.
It would also be quite useful if you stop using the word
"government" which combines so many things, in actuality. What
is done at the federal level, includes obvoiusly the three
branches. Do you blame the legislative and judicial branches,
as well as the executive? Do you blame the Treasury as much as
the Federal Reserve? The Federal Reserve isn't even an agency
of the government. And why don't you hate the banksters, like
everybody else? Can't you see their hand in this endless cycle
of flooding the market with liquidity, then all working in
concert, jerking all the money out of circulation?
But returning to my original point-- the federal level
"governs" us relatively little. What it does is mostly
transfer programs, plumbing, to keep the farms running, the
pensions for the elderly, etc. That is not "government". Its
kind of economic management, in a mixed economy. What
"governing" it does is relatively too little, too late, in
terms of protecting our rights, maintining the US Code and CFRs
and enforcing them to some extent.
I think every single American you talk to, realizes the problem
of special interests undue influence over lawmaking, exploiting
the rest of us financially and politically. This is the high-
level, general problem we should be talking about-- but it is
the last thing we think of, because it is NOT on the media for
obvious reasons. I really think we're chasing our tails,
talking about the financial collapse. We're being had. Every
single day. Let's have community meetings to talk about our
common ground.
.... 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
Without a government to defend us from big business, we would
be in even worse shape. The robber barons took over everything,
until the people erected laws against monopoly, for example the
common carrier laws.
The question is, exactly what laws and regulations actually
protect and help the American people as a whole, and this is
not a simple question. Or perhaps, I have made the wrong
assumption. What is the goal, anyway? THAT is a very good
question to discuss. You have made huge assumptions!
Todd
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