Having been a Mises subscriber for 2 years now, I learned that fractional reserve banking + Fed pumping caused the financial collapse. Now this is NOT regulation. But it seems some people say that regulation caused the financial collapse or at least contributed to it. How so?
Isn’t the Fed regulating interest rates? Congress mandating houses for people who otherwise couldn’t afford them? That is at least part of the recipe for disaster and seems like regulation to me.
What were Fannie Mae and Freddie Mac? I know they’re nationalized now, but they were always quasi-state enterprises whose sole point of existence was to buy up and securitize mortgages. They, of course, were “regulated”.
[QUOTEHaving been a Mises subscriber for 2 years now, I learned that fractional reserve banking + Fed pumping caused the financial collapse. Now this is NOT regulation. But it seems some people say that regulation caused the financial collapse or at least contributed to it. How so?
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Specifically FHA and HUD contributed to this current crises, Fanny and Freddie were GSEs and always had the implicit bail out guarantee even if it wasn’t in writing. Glass Steagle was modified, not repealed, to allow mixed banking and the creation of bad debt. The Fed, which exists because of regulations and laws that put it in place, flooded the market with easy money and credit so people would be inclined to take on that bad debt, which they did and now they’re screwed.
When speaking with normal people about regulation you have to realize how they approach the subject. Regulations that they don’t know about, or which currently exist, are always assumed to be either negligible in their effects or simply not to exist as regulations but as inevitabilities of life. For such people, The Fed has always been there and will always be there, so it doesn’t count. For such people, modifying the existing rules doesn’t count. For such people, if they don’t know about a rule or regulation, it doesn’t exist. For some such people, anything short of full communism is ‘unregulated’ and free. To them all things are a matter of obedience, and an existing regulation is simply a rule set in stone to be followed and from which only benefits flow, either in the reinforcement of good behaviors or the curtailment of bad.
regulation is a buzz word. When pressed, people will say that by regulation they mean rules. Rules stop free market currency from developing. Rules allow the fed to operate.
The Fed’s job is to regulate supply of money. It is a regulation.
I would start here.