Saturday, September 27, 2008

The First Debate

In the debate last night both candidates agreed that the current government-created economic crisis was the result of "greed," which has to be reigned in. And Obama repeated his seriously weird idea that it was caused by the Bush administration "shredding" regulations. Why does he keep talking as if his opponent were Grover Cleveland, and not a fellow big-government liberal? Oh well, I guess it's a question that answers itself.

Here I can do no better than to quote Lawrence H. White, an economic historian whose specialty is the history of banking (so he does know a thing or two about these things):

(1) If an unusually large number of airplanes crash during a given week, do you blame gravity? No. Greed, like gravity, is a constant. It can’t explain why the number of crashes is higher than usual. (2.) What deregulation have we had in the last decade? Please tell me. On the contrary, we’ve had a strengthening of the Community Reinvestment Act, which has encouraged banks to make mortgage loans to borrowers who previously would have been rejected as non-creditworthy. And we’ve had the imposition of Basel II capital requirements, which have encouraged banks to game the accounting system through quasi-off-balance-sheet vehicles, unhelpfully reducing balance sheet transparency.

This pro-McCain video tells part of the story (make liberal use of the pause button as you watch):



I wonder what made these people think they could coerce private banks to behave like socialist enterprises without harming the banks. Or maybe they thought they could harm the banks without hurting any actual human beings. Or maybe they weren't thinking of it in either of these ways -- but then what?

The really alarming truth of the matter, which is very dangerous for us all, is that twenty years after humanity awakened from the nightmare of state socialism, we on the pro-market side seem to have lost the battle of ideas, if indeed it was ever about ideas at all. As Steve Horwitz explains here.
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Added Later: I just thought of something that could make the above-describe-policy, of pressuring private banks to act more like George Bailey charitable institutions, half-way rational. Maybe the perpetrators were thinking something like this: No requirement we place on banks can possibly endanger them, because we have a regulatory system that prohibits them from doing anything unsafe, and requires them only to do safe things. As long as they behave in a safe, prudent way, they can't fail. And if the banks do fail, that is the fault of whoever failed to put these safe-making regulations into the system. Necessarily, if anything goes wrong, it proves that we unregulated, or not regulated enough, for the simple reason that it shows that the regulations that would have saved us were not in place. How many different things are wrong with what I just said?
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