The government needs to stay out of most areas of the economy about 95% of the time. The other 5% of the time, when the is market failure and external events, like the 9/11 attacks, the 1973 oil embargo, and the sub-prime meltdown, intervention will be needed.
The auto companies did not hold FED rates down at 1%, did not write a law saying that Fannie and Freddie had to make a certain % of loans to people with bad credit and high loan to value.
Most of the reasons this is worse than a normal economic cycle are due to government actions -
1- SEC allows some banks to go from 12:1 to 30:1 leverage (Bear, Lehman, Merrill, JPMChase, Goldman Sachs, Citigroup) - that is a textbook case of being reckless.
2- A Congress passes law FORBIDING regulation of Credit Default Swaps. The law even excludes them from the gambling laws. Otherwise, they would not be legal in Nevada.
3- Allowing Lehman to fail, and their bonds to fail. When something gets "too big to fail", you don't let it fail. If the government does (1), it will need to do (3).
There are about 20 more contributing factors to the crisis, most of them government related. |
