Feel free to still comment on my last post. I want to know if you all agree/disagree with the benefits of Fractional Reserve lending and the example I posted.
In reading the book and following current events, it seems the current crisis is a good way to acid test some of Rothbard's critiques. I am curious to hear everyone's thoughts on the the underlying cause, because I am still trying to clarify my own. The Crisis we went through, and may still be going through, had a cause. The debate is still out on what it was. Politicians are throwing around solutions and enacting legislation (like the financial legislation passed today) without ever explaining what the cause was. Here is what I think they each claim:
Democrats: Lack of regulation allowed banks to become over-leveraged and make bad investments, especially in housing. Basically, banker's greed did us in.
Libertarians: They blame the FED and the business cycle for over supplying money by keeping rates low from the dot-com crash to 2006. Easy money led to bad bets by banks. The Fed manipulating the money supply is to blame.
Republicans: I have heard them blame gov't regulation, like one that encouraged banks to lend to minorities (I think it was the community reinvestment act...or something) which I think is ridiculous. I would think that if you want to blame regulation, you could blame the FED like the libertarians do, but perhaps Republicans are too in bed with big business (banks) to suggest the FED could be responsible.
Any thoughts on what the party's views are? other views?
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I also blame (only because i've heard a bunch of people blame...) the moral hazard created by the ability banks had to make a million stupid loans, package them as securities, and ship them off to government sponsored enterprises such as Fannie, Freddie, Ginnie, and the FHA. There is no question about it. It DID happen. Those institutions DID GET BAILED OUT. The banks knew exactly what they were doing. The government enabled, through implicit guarantees, irrational actions. Usually when institutions do really really stupid things the market makes them pay. Well not when business-government collusion cushions the fall. it only sets us up for more. The community reinvestment act was very small, but even a small amount of stupidity is still considered stupidity. and even as small as it was, it still affected a small bank like the one my stepdad ran, he said, "if you didn't meet their quota they'd be all over you, and all progress would halt until you abided by their rules." so, as small as the CRA was, it still had an effect.
ReplyDeletethe greed argument is weak because greed has been a constant throughout history, and will continue to be a constant. but what is bad is when the powers that be enable and encourage that greed to proliferate. rewarding greed with bailouts by exploiting the taxpayer should be a crime. and that is exactly what happened.
there is absolutely nothing free market about the government sponsored enterprises, or the fed's involvement. yet the market always receives the brunt of the blame.
also, lets keep in mind the fact that the financial sector is the most heavily regulated already. yeah, more is obviously needed. we should read stigler's nobel winning work on regulation and its real effects.
"The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design."
Let's design some more regulation. just a few more should do the trick.