The Crash: Brought to You by Central-Planning Elitists
The economic crash is easy to understand. Rampant credit (making money out of nothing) fueled a spending binge that was impossible to maintain. The housing bubble and the toxic debt it spawned can also be seen as the inevitable outcome of ignoring human nature in favor of grand statist schemes.
Rational Self-Interest
Adam Smith explained that people act upon their rational self-interests, and that is what crashed the economy. The federal government shielded mortgage lenders from the downside of their irresponsible lending by insuring them with quasi-governmental organizations like Fannie and Freddie. Securitization of debt (hiding the bad debt by packing it in with good debt), created a "trust me" environment that allowed Wall Street to reap billions before the whole scheme unraveled, resulting in G-men frog marching thousands of financial pirates off to Ryker's Island.
OK, I made that last part up. Government never turns on its own.
Back in the old days, a banker didn't have the luxury of packaging ticking debt bombs off to Wall Street, where wiz kids packaged them into even bigger stink bombs and then launched them upon the world. No, the banker of olden times knew he was stuck if the person he loaned the money to couldn't pay it back, so he made sure the borrower was responsible and creditworthy.
20% down served a few purposes. It immediately vested the borrower in the home, making it tough to just walk away. Also, so much equity up front made it harder for the owner to be underwater in a downturn. Remove all of this, as our government decreed, and you get irresponsible lending, people walking away from underwater property, and bad debt stamped triple A Plus by crony crapitalist ratings agencies who wouldn't know due diligence it it slapped them in the face.
Water flows downhill. Electricity (and people) follow the path of least resistance.
Crash of the Titans
Jeffrey Snider has written an article entitled, The Aura of the Fed is Gone, Good Riddance. In it he explains the folly of monetarism and centrally-planned economies, even those with a patina of semi-free market kinda-sorta crony-infested capitalism variety.
Whatever crisis follows, this could be, as I said at the outset of this piece, the beginning of the end of the Age of Monetarism. Our economy, including the rest of the world, needs to see the Federal Reserve and central banks stripped down to reality. Monetary policy needs to be exposed as a broken, flawed theory consisting of nothing more than hubris and harmful ideas. From there, we can try to regain a fundamental capitalist footing that ensures long-term economic health.The old statist models have failed. What now?
