How some think

[fpb]

This was actually published today, by a conservative commentator, as something worth saying in a discussion:

The truth is that we don't have a free market -- government regulation and management are pervasive -- so it's misleading to say that "capitalism" caused today's problems. The free market is innocent.

The amount of non sequiturs, false issues and sheer ignorance that underlie this passage is mind-numbing. And such a man is paid to write this, and people pay to read it.

P.S.: There are people on the opposite who are just as bad. But I tend to stay away from their stuff, and therefore get less instance of outright idiocy than I meet on the right.

Comments

[fpb.livejournal.com]

Thre are two things that I object to. First, the invention of an imaginary free market with no evil state intervention - when the market itself is a product of the laws and could not exist without regulation. Second, the claim that all financial disasters and crimes are primarily caused by bad state intervention. This, to me, is nothing more than moral escapism: blame the State for the collective infatuations of thousands of free agents who deliberately threw themselves into what seemed, at the time, rivers of gold. Not our fault, of course not! That some regulations are bad or damaging or dangerous I do not argue; that speculative bubbles and ramps are in any way primarily caused by bad regulation I will believe when I believe human beings have ceased to be moral agents. Nobody obliged anyone to take a stupid debt, but thousands of people did, and thousands of people - naively or worse - took jobs which depended on their selling bad debts.

[arhyalon.livejournal.com]

You make a good point.

There are factors in the free market that tend to correct for certain abuses if left alone, but, of course, there are other abuses that are not corrected--or not corrected quickly enough, to make a complete free market a wise idea. For one thing, one would at least need criminal laws to stop fraud.

As to the second, I do think that in particular the last few financial catastrophies in America were enabled by government regulation...but you are entirely right that a dose of good judgement would have kept those loopholes from becoming disasters.

I have a friend who was offered a huge loan by their bank. They had the wisdom to refuse. But there are others who were not as wise--particularly because, up to ten years before, one could rely on banks to tell you how much you could afford wisely. Anyone who still trusted their bank to do this suffered.

They are the innocent ones.

But what about the banks who were doing this? They did not need to indulge in such outrageous behavior? Or banks that encouraged people to lie about whether or not their purchase was for living or investment? The very idea of a bank encouraging someone to lie on a form is outrageous.

So, you are entirely right that the many, many individules who deliberately chose to take steps they had reason to know were unwise are responsible for the disaster that followed.

The government is at fault for creating misleading incentives...but each person who knowingly followed up on those incentives is also at fault.

I do not blaim anyone who was deceived into thinking that they were doing the wise thing. I think they are the victims here. (I have friends who were assured by realtors, etc, that they would be able to do this or that to make an nigh-unpayable bill more affordable later. Some of these friends are really struggling now, and they just didn't know they were being mislead. I really feel for them.) These people are, I feel, different from people who knew very well that they could not afford something, but accepted the debt anyway.

What saddens me the most is that many of those in the business must have known what they were doing was wrong...because they have recently switched to outright fraud. Many ex-mortgage companies and lawyers are now offering debt protection programs that are just fraudulent. They take people's money and do nothing. There are thousands of complaints about this per state.

So, while I do agree that we, at least in America, do not have a fully free market and that government regulations contributed to our current distress, I also agree with you that the individuals who took advantage of the situation are equally responsible.

What puzzles me the most is that I knew several people who predicted the real estate crash in 2004 or 5. (One was an economist friend who spoke on a panel that was visited by John McCain. McCain later sponsored a bill to try to halt some of the abuses going on at the time. He was voted down. The opposition claimed he was racist because the loans he was trying to stop could help poor people.) If these folks knew it was coming, how come the guys whose whole livelihoods depended upon it could not see it and prepare.

I am reminded somehow of the seven fat years and seven lean years in the Bible...but we are without a Joseph who correctly predicted what was to come.

[mentalguy.livejournal.com]

The thing is -- it wasn't just the bad debt. It was the selling of fraudulent derivatives which turned a relatively localized problem in the housing market into a systemic financial crisis. We *used* to have regulations which would have prevented this, but they were relaxed or removed -- alas, in the name of enabling the free market.

[arhyalon.livejournal.com]

As I said above, I'm all in favor of laws restricting fraud. I do not think one can have civilization, much less a market place, without such laws.

[mentalguy.livejournal.com]

Maybe I am misreading you. I had thought you were writing as though the bad loans were a sufficient cause of the financial crisis. As far as I can tell the bad loans were necessary but not remotely sufficient.

[arhyalon.livejournal.com]

Sorry...wasn't clear. I think bad loans were sufficiant for the current real estate crisis...forclosures, etc. But you re entirely right that the general crisis goes far beyond that.

[fpb.livejournal.com]

Well, no, that is not the primary problem with Britain. The problem is that the public were encouraged, over a period of thirty years, to get themselves into debt on increasingly overpriced brick-and-mortar collateral, at the same time as the State lost revenue because of the collapse in domestic manufacturing and squandered the revenue it had. As a result, Britain today is unpayably in debt on both sides: most British citizens owe more on their homes than they can ever repay, while the State needs to either make dramatic cuts or raise taxes, both of which will increase the general misery. The country badly needs political leadership, and has none.

[mentalguy.livejournal.com]

Not that I exactly disagree. As far as I can tell there are three necessary causes for the crisis which are together sufficient in both Britain and the US:

1. the erosion of productive economic activity like manufacturing
2. an accumulation of debt in order to maintain/achieve a standard of living in the absence of sufficient productive activity to support it
3. the eventual de facto re-foundation of the economy on activities which essentially involve trading this same debt as a commodity in a sort of infinitely-regressing pyramid scheme

[mentalguy.livejournal.com]

Just so. Bad law did oblige many bad loans to be made, but by itself that would not have made a financial crisis if speculators had not seeded the financial foundations of the world with these loans, deceptively packaged, a thing which was only possible due to the relaxation of important financial regulations over the past few decades.

[fpb.livejournal.com]

Bear in mind that we had no such bad laws in Britain, and that our situation is, if possible, worse than the USA's. It was simply a bipartisan orgy, in which I can only say with very modified satisfaction that I was never tempted to take part. I could not have afforded it, but that did not stop many people.

[mentalguy.livejournal.com]

My understanding had been that the British finanicial sector also has serious problems with derivatives. And certainly the regulation of derivatives is an area in which the UK has parted company with the rest of the EU. For a recent example: http://www.eubusiness.com/news-eu/britain-finance.1zu

[arhyalon.livejournal.com]

By the way, you've probably seen this, but if you haven't, it is both funny and sad, as it came out in 2007...a whole year before things really went bad.

http://www.youtube.com/watch?v=mzJmTCYmo9g