Monday, November 14, 2011

Free Markets and Consequences

The term "free markets" means markets and commercial activities with few or no restrictions.

What human activity doesn't end in tragedy when human impulses are left unrestrained? (Whether you view it in terms of "original sin," human nature, or karma, unrestrained human impulses can be catastrophic.)

The US and world financial markets became ever "freer" under the policies and practices of (i) libertarian Alan Greenspan of the Federal Reserve and (ii) the GOP controlled US government during Bush II's first administration. (Not to mention the whole Reagan Revolution thing.)

Who thinks the crash of 2008 was just something that happened without cause?

Let's face it: Derivatives (and their rating scheme) operated in almost a pure "free market."

Derivatives were the direct cause of the crash of 2008.

1 comment:

  1. For the sake of this argument, I'll agree with you that derivatives were the cause of the crash of 2008. However, to suggest that derivatives and their rating scheme operated in almost a pure "free market" is either disengenuous or ignorantly naive.

    The market was not "free" because the government was manipulating the risk by encouraging lending institutions to lower their credit standards and offer loans to many who would not have otherwise qualified.

    Why did the government do this? For the well-intentioned result of getting more Americans into the position of home ownership. This can be argued offers many benefits to the country as a whole through stable households and the acquisition of wealth by the middle and lower classes, etc.

    However, the manipulation of this market by a government that encouraged greater risk-taking with the opportunity for lending institutions to be shielded from losses if things go awry clearly distorted the market. That being said, the "free market" you speak of was far from being "free" as gov't. had its hand in the whole mess.