Monday, October 20, 2008

Financial Calamity Caused by the Free Market?

Anthony Gregory has a great article on LRC.com today. He points out the utter stupidity that is nearly everything pundits on Cable TV, Radio, and Newspapers/Internet sites have been saying lately about the chickens coming home to roost on the crooks on Wall St. and at the Fed.

Specifically of note, is this:
Anyone under fifty who went to public school probably remembers this lesson: We used to have laissez-faire, and it caused great inequality, poor working conditions and bank panics, so we had the Progressive Era and the creation of the Federal Reserve. But we still had too much economic liberty and it (not the Federal Reserve) brought on a Stock Market bubble that burst in 1929, so we had the New Deal, the FDIC, national economic planning and the like. While that didn’t quite end the Depression then (perhaps World War II did?), it did guarantee that we would never have one again. Thanks to government interventions from Teddy and Franklin Roosevelt to Lyndon Johnson, our modern economy will never have the troubles it did in the 1930s. Central banking and millions of pages of federal regulation keep this economy afloat and comfortably growing.

Now all of a sudden the statists claim we are having the same kinds of troubles, and once again it’s all the free market’s fault – the same free market they said no longer exists, due to decades of intervention. It’s the freedom to buy and sell, to contract with one another, to exchange within a framework of free association, free pricing and property rights that has, once again, brought on economic calamity. Not the century of interventions that they said have guaranteed no such catastrophe would ever again happen. No, the remaining pockets of liberty are at fault.
Anthony Gregory goes on to tear some idiot from the Wall Street Journal a new one over various stupid things he says in his recent article.

He also quotes Ron Paul from five years ago when he warned of the housing bubble and Fannie Mae and Freddie Mac in particular:
If Fannie and Freddie were not underwritten by the federal government, investors would demand Fannie and Freddie provide assurance that they follow accepted management and accounting practices.

Ironically, by transferring the risk of a widespread mortgage default, the government increases the likelihood of a painful crash in the housing market. This is because the special privileges granted to Fannie and Freddie have distorted the housing market by allowing them to attract capital they could not attract under pure market conditions. As a result, capital is diverted from its most productive use into housing. This reduces the efficacy of the entire market and thus reduces the standard of living of all Americans.

Despite the long-term damage to the economy inflicted by the government's interference in the housing market, the government's policy of diverting capital to other uses creates a short-term boom in housing. Like all artificially-created bubbles, the boom in housing prices cannot last forever. When housing prices fall, homeowners will experience difficulty as their equity is wiped out. Furthermore, the holders of the mortgage debt will also have a loss. These losses will be greater than they would have otherwise been had government policy not actively encouraged over-investment in housing. . . .

. . . Congress should act to remove taxpayer support from the housing GSEs before the bubble bursts and taxpayers are once again forced to bail out investors who were misled by foolish government interference in the market.
So, if you get the opportunity to bitch slap someone who blames the "deregulation" and "the Free Market" for the government's latest crisis of its own creation, by all means please slap the stupid out of them.

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