Monday, September 29, 2008

Financial Crisis: Congressional Coverup?

"'THE PRIVATE SECTOR got us into this mess. The government has to get us out of it.'"

That's Barney Frank's story, and he's sticking to it. As the Massachusetts Democrat has explained it in recent days, the current financial crisis is the spawn of the free market run amok, with the political class guilty only of failing to rein the capitalists in. The Wall Street meltdown was caused by "bad decisions that were made by people in the private sector," Frank said; the country is in dire straits today "thanks to a conservative philosophy that says the market knows best." And that philosophy goes "back to Ronald Reagan, when at his inauguration he said, 'Government is not the answer to our problems; government is the problem.' "

In fact, that isn't what Reagan said. His actual words were: "In this present crisis, government is not the solution to our problem; government is the problem." Were he president today, he would be saying much the same thing.

Because while the mortgage crisis convulsing Wall Street has its share of private-sector culprits -- many of whom have been learning lately just how pitiless the private sector’s discipline can be -- they weren't the ones who "got us into this mess." Barney Frank's talking points notwithstanding, mortgage lenders didn't wake up one fine day deciding to junk long-held standards of creditworthiness in order to make ill-advised loans to unqualified borrowers. It would be closer to the truth to say they woke up to find the government twisting their arms and demanding that they do so - or else.
This is where I think we should be finding the explanation for this crisis. When people risk their own money, without the assurance that government will cover their bad bets, people take fewer risks. You should read the whole piece by Jacoby and see if his story makes more sense to you that the stories being told by most of the members of Congress.

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