Understanding the mortgage market collapse, credit freeze and subsequent rush to put a floor under the global financial markets may take some kind of higher degree that I haven’t earned yet. I have no problem conceding this valid point. But, that does not mean that I, as a libertarian, probably wouldn’t come to the same conclusion that I have hesitantly reached recently about this government rescue mission with a few extra letters next to my name.
Again, to preface, I am not an economist. But, it seems to me that if a group of analysts, strategists, et al - working in fields where success is so valuable that the people who float to the top routinely make several million (if not several hundred million) dollars each year – can’t even keep it together, then, it seems to me, there must be some kind of complex and/or unstoppable force working against them. But, the more blogs and articles I read, the more it becomes apparent that there were economists out there who understood that we were in the midst of a housing market bubble.
So, what gives?
This is where one’s sense of politics and philosophy is drawn out a little bit. Is Wall Street really comprised of a bunch of empty suits, globally connected profit-bots that can’t compute love or empathy? Or, are these guys just regular people that happen to make a bunch of money for having highly specialized skills and working excruciating hours? I’d like to say “the truth lies somewhere in between,” but, as everyone knows, these guys are just regular people with fun jobs. Investment bankers, consultants and traders are just extremophiles that choose to spend a lot of their time tracking flittering numbers and talking on two phones at once. Most of the time, they do what they do and everything is fine. A couple times per century, everything falls apart.
This time it looks like there were some market distortions. It looks like the citizenry, with its limited perception, decided there was some inequality and, therefore, there needed to be some positive action taken by the government, that social mechanism of compulsion and coercion, as von Mises would say. Thus, the Community Reinvestment Act is born. Those who applied for loans with poor credit were green-lit anyway and a whole bunch of houses were built in spite of the fact that the cash was only implied. When the money never came through, people started losing houses, banks started losing money and credit became a thing of the past.
Cue Ben Bernanke and Henry Paulson. If we, their reasoning goes, can just buy up all of these defaulted loans from these lenders in order to restore confidence to investors, credit, that fundamentally necessary financial tool, will return. People will stop losing their homes, banks will regain their footings and catastrophe will be averted.
This is all well and good to a point. It may just work in the short term – I don’t know. But, it seems like no one is learning from the mistakes here. The first time we got off track was when money was being allocated to a place the free market would have never put it, namely, to people with poor credit. It seems to me that this is not something that is solved by more regulation; this is something that is solved by less regulation. This is also a problem that was not caused by the greed of faceless corporate fat cats who sit around in their skyscrapers leaking cigar smoke out of their mouths all day. Those guys don’t get skyscrapers by being fat idiots.
The most questionable practice going on seems to be the subprime loans. This is a way that people with poor credit can actually get a loan outside of the government. But, since they have bad track records with paying back money, the interest rates on their loans are much higher. Is this a predatory practice? I don’t think so, but, admittedly, this is a very simplified version, and I’m not sure I fully understand it entirely.
Anyway, one thing that everyone is sure of is that this stuff is complicated. No one can say what the outcome will be and there are a lot of competing descriptions of what went wrong and why. As a libertarian I don’t expect to be pleased with the result, whatever it may be, but I can expect to hear a lot of discussion about economics on TV and on the Radio, and, to me, that’s better than American Idol.
