In the four years since the housing bubble burst, triggering a collapse in global financial markets whose value had been propped up through the repackaging and trading of home loans via complex financial instruments, there’s been plenty of blame to go around. The Occupy Wall Street protests have called new attention to the root causes of the crisis, and led Republicans to reiterate their claim that government-backed lenders Fannie Mae and Freddie Mac were the primary villains. The facts about the subprime mortgage market prove that claim false:
Private firms dominated the subprime market boom of 2004-06, and were not even subject to the 1977 Community Reinvestment Act some Republicans vilify. Thanks to decades of financial deregulation, capped by President Bush’s decision to appoint Wall Street regulators who believed their job was to help banks rather than curb banking abuses, financial giants were able to turn the mortgage market into a high-stakes casino. As investigative reporters and Congress’ Financial Crisis Inquiry Commission have all shown, it was deregulation mixed with irresponsible and potentially illegal practices by private firms on Wall Street that caused both the bubble and the collapse."
There’s nothing “private” about entities who are benefiting from a lender of last resort (government/taxpayer) backstop. There’s nothing “free” about a market by which a central body (Fed) determines the price of money (interest) to benefit said entities. Consequences from government regulation can NOT be eliminated by MORE government regulation. Get the government out of the way and allow the market to “regulate” things most expediently – through profit & loss. Enough said.
Where the real problem lies is the collectivistic attitude which results in a collectivistic system where if part of the “system” fails it can bring down others parts of the system. That is, the problem is the socialization of losses. Not only that, but these people are very hypocritical. They, at least implicitly, believe that we’re all in this together, etc. Yet, Wall Street can be seen as the way in which society figures out how and where to invest capital. To think that this scheme can’t fail ever is ridiculous. They don’t even take time to try to understand the market or economics or much of anything else really. Then sophists like David Graeber come along and really muck things up with his fundamental misunderstanding of economic theory as it relates to history. I hope that made some sense.
Basically this argument includes various fallacies and factual errors, but on its face, it ignores the overall point. The argument has never been that private banks had absolutely no role in any of the crisis. This is basically an implied strawman. The main point about Fannie and Freddie is that they were basically government corporations (and now they are undeniably that), and they had an implied government backing…and they were there to purchase the notes originated by lenders. If that secondary market dominated by the GSEs did not exist, the lenders would not have had the incentive to make such risky (i.e. bad) loans.
I outlined what went on in a bullet point format here. Also, as brought up here in that same thread and in the Inside Job discussion, the only “deregulation” anyone can ever seem to mention is “Glass-Steagall”, and even then they don’t even know what it is.
would it be accurate to say that the housing collapse and the current financial crisis are, in a way, two seperate things? One birthed from the improper treatment of the other?
If so, doesn’t the title of the article prove its own lack of authority?
Thanks for the quick responses guys. The way I see it is that, while these parties were benefactors of the Feds low interest rates (and of the bailouts) it was the Fed that made this possible. Or am I off-base?
Yeah, in a way. But they’re certainly related in more ways than one.
Not exactly. I’m not sure I would put it that way.
I don’t know about proving a lack of authority, but it certainly shows a lack of understanding, not only of economics, but of the basic facts of the circumstances.
It was done by our own Graham Wright…who also created the voluntarist video and the Law Without Government series as well. Be sure and send him some thanks and encouragement, and spread those vids around.
