An historian, Louis Hyman, has written an article in the current Wilson Quarterly, The Debt bomb, that is excellent. It is the clearest piece I’ve read so far.It delves into the causes of the recession with honest research, presenting a view I’ve not heard before. Follow in the Austrian tradition of the great value of historical perspectives, Louis does escapes from the aggregate monetary views presented by two other articles on the same subject in the Quartely by two articles by Chicago school authors, Robert J. Samuelson, and Robert Z. Aliber.
Comparing the three articles, it is very clear that the two Chicago authors confuse cause and effect, attributing the effect to the cause of the recession. If Hyman is not already and Austrian, the Institute should invite him as a speaker.
The Debt Bomb compares the 1929 depression with the 2008 recessions and finds similar causes. The primary cause was vastly over-extended lending by banks to consumers of real-estate mortgages through investors in mortgage debt. In 1929 these investors switched from lending to manufacturing companies to lending to financial paper mortgages. In 2008 the vastly over-extended lending by banks was made possible by CMO’s sold to a much more expanded group of investors and consumers, many of whom then also bought CDO’s (a device whose invention has been attributed to Dr. Ben Bernake during his time at the IMF ). However, this time these CMW’s and CDO’s were sold world-wide. In 2008 again, the heavy draws of capital into the finance field was at the expense of investments in all other industries and greatly enriched the bankers and hedge fund managers at the expense of all other businesses.
The 99%'s are not wrong in blaming the banks, but they do not see the government policies put in place earlier to allow the banks their free play with our economy. Removing the laws and rules put in place after the 1929 debacle permitted the same debacle to occur again. We really need historians to make this very clear to the general public. Of course, if the Fed. were no present to back up all the bankers, this problem would not happen, or would be short and quick, with a short quick recovery. Instead greed and animal spirits are blamed.
I hope many of you will read Louis Hyman’s article and comment on it.