All too often, the political pundits, especially those who are anti-capitalist by nature, and perhaps even closet socialists, although we are not allowed to say that – seem to point fingers at free markets, companies, Wall Street, investment banks, and large corporations as the reason, claiming they are fault that we go through economic cycles. I’d like to explain why it is generally government’s interference in the private sector the causes failures, bubbles, and eventually crisis.
For instance, let’s take Fannie Mae and Freddie Mac, they are quasi-government agencies, and they were allowed to circumvent the rules because the politicians wanted to push an agenda to allow home ownership available to everyone, even those who couldn’t afford it, or would never pay back the loans. This goes against everything that free markets are about.
If you want to find blame with the global economic crisis, you shouldn’t bother to read the congressional report on the topic of what went wrong, rather you should study your history, microeconomics mankiw pdf and read some of the news as that bubble was building. Do you recall that Elliot Spitzer worked very hard to shake down some of the biggest corporations in Wall Street to get them to pay fines and fees? No one company that stood up to him, it was AIG.
Then Elliot Spitzer who later was forced out of office for using public funds to hire hookers (young prostitutes), went after AIGs Hank Greenberg, and finally getting the courts to kick this man out of his own company, the company that he had built, and took globally. It was AIG’s London office that was insuring the CDOs sometimes for 130% of value, and insuring the mortgage bundles, as they were bundled and re-bundled and traded. If Hank Greenberg have been running the company, well, that would’ve never happened. But since Elliot Spitzer kicked him out, he was no longer their run that giant organization.
There were other people at fault too such as the rating agency which were stamping everything Triple A, however if the other two things did not occur, we would’ve never got into a global economic crisis and bubble burst which took down the entire world economy. Now then, that is just one instance of government failure, as it puts its demands on the private sector. There is a very good book I’d like you to read that explains many, many more examples. The name of the book is;
“Government Failure versus Market Failure Microeconomics Policy Research and Government Performance” by Clifford Winston, published by the AEI-Brookings joint center for regulatory studies, Brookings Institute Press, Washington, D.C., (2006), 132 pages, ISBN: 978-0-8157-9390-8.
Another book that I hope you will read some day is “How Capitalism Saved America” by DiLorenzo. I bet by the time you get done with reading those, and perhaps you’ve already will read Adam Smith, and some of Ayn Rand’s novel’s, that you will get a better idea of exactly what’s going on here. The problem is not with free-market capitalism, the problem is with government intervention, and the incestuous relationships which are manipulating capitalism.