Why would anyone with even the slightest sense say this? Among others, we have the fairly recent example of the S&L disaster thanks to Reagan / Bush 41′s faith in “deregulation.” Part of the reason the S&L bailout occurred is because these presidents said “Free markets need unburdening…” …and threw out legitimate accounting standards (“Carrying non-performing loans on your books is OK now!”). This led to a disaster orders of magnitude larger than Teapot Dome or Credit Mobilier.

We can even thank that Ayn Rand acolyte, Alan Greenspan, for ignoring, and certainly not regulating what led to the current sub-prime mess. The Clinton administration is responsible for letting FNMA purchase sub-prime loans, and Bush 43′s guys expanded these purchases tenfold, so this is a bipartisan failure too.

And why no mention of the lack of anti-trust enforcement to split up the too-big-to-fail private financial institutions (Fannie, Freddie, *and* Bear Stearns)…?

So calling for *less* regulation in a market where the result of that “less regulation” or “bad regulations” have produced the current and previous disasters just doesn’t make sense. There is even no mention of whether allowing these institutions to fail would produce a larger financial meltdown (it would).

Yet this is what passes for intelligent discussion of public policy nowadays. “Who cares if there’s a baby in this bathwater! Throw it out!” [sigh!]

Doesn’t Warren know that there before FNMA and FHLMC the idea of a 30-year loan was simply not explored by a completely free (no FDIC) banking system? In the 1920′s interest-only mortgages (“straight notes”) were a commonplace, and were rolled over by the banks every five years. Of course if some catastrophe struck, and the bank or the borrower couldn’t roll these loans over, then massive foreclosures occurred. That’s one reason we had the financial meltdown called the “Great Depression.” …Another reason the FDIC (and FSLIC) existed in the first place.

Don’t get me wrong. The government has done a terrible job with Fannie and Freddie, but the bad job is because of under-regulation, not a lack of “free markets.” This is congruent with a recent trend noted by Sara Robinson: “. . . for the last 30 years, conservative governments have resolutely cut budgets and driven out the experts whose job it was to keep the country’s public works in good working order. They did it on purpose, to prove their ideological argument that putting infrastructure in the hands of government was always a bad idea. And they were also quietly licking their chops, waiting for the day that the people’s capital—the stuff built up and bequeathed to us by so many generations of Americans before us—could be declared salvage, and sold off to their cronies for the price of scrap in one last privatizing fit.” (from here)

And no one was immune from the temptations the mortgage crisis presented in its early stages; even Countrywide, a completely private institution, threw away its previously sterling reputation (it was the gold standard in the ’80′s when I worked in the mortgage business) in pursuit of the quick buck. Private / public doesn’t make much difference when it comes to corrupt practice.

To me, the kind of idolatrous thinking that concludes no matter what the problem, free markets or privatization are the answer… This thinking makes sense only if it’s part of a larger story. Here’s that story promulgated by the Imperial Amurricans:

Empire Story:
Free markets unburdened by rules and trade restrictions direct investment to its most productive use, provide jobs, give consumers the lowest prices, and maximize the well-being and happiness of the society.

There actually is an alternative story:

Earth Community Story:
The term “free market” is a code word for an unregulated market that frees the rich to consume and monopolize resources for personal gain free from accountability for the broader social and environmental consequences. Markets are an essential institution, but to allocate efficiently they must have intelligent and fairly enforced rules.

Looks like it matches reality better to me, but I’m sure there are those who will disagree (Ain’t it awful how those regulations give you age spots too?)….8^)

Incidentally, I’m wondering what y’all would think of this stuff in the context of Chris Martenson’s Crash Course

Jeff

The moral of the story is that Barney Frank’s idea of a financial system, in which a very forgiving government-sponsored lender makes low down-payment loans in the name of “affordable housing,” only works for a while. Eventually, it uses up a lot of money and a lot of time and effort on the part of the civil servants trying to put Humpty-Dumpty back together.