Watching this financial crisis unfold, we are seeing lots of stories like this showing misdirected anger. I call this “stupid populism.” It’s egged on by supposed populist (but actually leftist) politicians like our U.S. Senator, Sherrod Brown. It’s this idea that private businesses are full of crooks and we need the government (i.e. politicians and bureaucrats) to protect us from them. Now, we certainly do need protection from businesses getting in bed with the government, but seriously, do you really think this protection is going to come from politicians and bureaucrats who benefit from the arrangement?
It is true that rich, connected people will benefit from all this, as will other sleazy entities with their hands out at the federal trough. However, at root it’s the government that is at fault for this situation. Yes, the same politicians and bureaucrats who are telling us they now must have $700B to “avert” a collapse.
The core of the problem is that the federal government has a weapon that state and local governments thankfully don’t have: the Federal Reserve’s ability to create money out of thin air (for example, by maintaining artificially low interest rates). That’s what sets up these boom/bust cycles. It enables the government to spend massive amounts of money that it doesn’t have. It enables banks to lend money that they don’t have in reserves. It enables destructive quasi-government entities like Fannie and Freddie to “guarantee” mortgages, which in turn (along with other government policies) provided enough false signals for lenders to go to town.
Back when we signed our home mortgage in the early 2000s, they were handing out mortgages and lines of credit like candy. Yesterday, it was “we need to let everyone participate in the American dream of home ownership.” Today, it’s “how could you lenders have been so irresponsible?”
Mises.org has created a compendium of articles on the situation.