false61005161596985879978159698587214357Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and the Government Bailout Will Make Things Worsehttp://photo.goodreads.com/books/1255656990m/6100516.jpg
http://www.goodreads.com/book/show/6100516.Meltdown_A_Free_Market_Look_at_Why_the_Stock_Market_Collapsed_the_Economy_Tanked_and_the_Government_Bailout_Will_Make_Things_Worse
2635Thomas E. Woods Jr.46515140falseTue Sep 01 00:00:00 -0700 2009Sun Apr 26 07:28:07 -0700 2009Wed Sep 30 06:11:10 -0700 2009 The statist media charges that the reason for our economic meltdown was because of deregulation, a slap at those nasty Republicans. In truth, it was the wrong kind of regulation and intervention in the economy by various administrations (Democrat and Republican) that was responsible; most notably the Federal Reserve, the central bank in charge of US monetary policy.
"The more I know, the more I don't know," is an aphorism beloved by the truly educated, and apropos here, but there are some things we CAN know, and they are as true as they are obvious, to wit:
1. When interest rates are kept artificially low, speculation, indebtedness, and excessive leverage are encouraged, all of which are culprits in our boom-and-bust economy.
2. When taxpayers are on the hook for financial institutions' bad decisions (the bailout), the financial institutions become more reckless. The solution is to cut the tie: no bailouts.
3. Expanding credit, as a means of lowering interest rates (exemplified by the sub-prime housing market) ALWAYS results in a boom-bust cycle.
4. When the Fed artificially lowers interest rates, this encourages lines of production that are not market-inspired and result in excessive risk that cannot be sustained in the long run.
5. The "boom" portion of the cycle is a result of artificially low interest rates set by the Fed. The "bust" portion comes from government interventionism: nationalism and needless public works.
6. Artificial credit expansion (a misdiredction of production) not only caused the Great Depression, but increased its length and severity.The Great Depression was only "great" in America; elsewhere in the world, governments allowed the market to self-correct and most countries came out of their financial woes within five years. In America, it took WWII to finally eradicate it.
7. If the Fed had not made money so inexpensive (via artificially low interest rates), loans to unworthy borrowers would not have been made. They were made, however, because of Democrats in Congress, eager to reinforce their constituencies (the poor and people of color), saw to it that financial institutions were required (by law or extortion by organizations like ACORN) to make loans to people whom experience had shown had a high likelihood of nonpayment. And thus it began.
8. Presidents, Republican and Democrat alike, have stated that a part of the "American dream" is home ownership and have crafted the Tax Code to that effect (c.f. the home mortgage deduction). That is fine, but the market used to decide who actually GOT a home and that was usually people who could scrape up the 20% down payment. Why 20%? Because experience (actual banking experience, not legislative wishful thinking) had shown that someone who was able to save 20% toward a down payment for a home would likely continue to pay on that home when times got tough. Plus, their down payment gave them instant equity and also a reason to stay put and work through hard times instead of simply jumping ship when times got bad.
9. A class war may have begun: due to government policies, if you bought more house than you could afford, if you took out home equity loans to purchase consumer goods, and if you're missing your payments, you get special consideration. But if you behaved responsibly and bought a smaller house than you could afford, and didn't treat your house as a giant ATM, you get no special consideration. In fact, you indirectly subsidize the foolish and improvident. Which are you?
10. The solution is this: let the market decide the value of homes. This will make housing more affordable and will make it possible for people to purchase homes without getting themselves so deep in debt. However, this option is never even considered. Therefore, we are in for more resource misallocation and a more intense bust in the future.