Regulation Begets More Regulation

My jaw dropped when I read the second paragraph of a Wall Street Journal article today. The story paraphrased Treasury Secretary Timothy Geithner’s pitch for the government to guarantee home mortgages: “The private sector’s ‘full retreat’ from the mortgage market over the past three years provides a ‘compelling illustration’ of what would happen without some government role, [Geithner] said.”[Note 1, emphasis mine.]

The collapse of the housing market illustrates what would happen without government involvement? How can anyone read this with a straight face?

The government caused the housing crisis. As Yaron Brook put it, “For decades, Washington promoted homeownership by people who couldn’t afford it; think Fannie Mae and Freddie Mac, the Community Reinvestment Act, tax incentives to buy homes, housing subsidies for the needy, among other programs.”[Note 2.]

It is true that Geithner grudgingly admitted in the press conference that “alongside broader failures,” (which he leaves unnamed), the government sponsored entities Fannie Mae and Freddie Mac played a part in the crisis by creating a “race to the bottom” with lax underwriting standards. But Geithner cannot even imagine a market that is not controlled by the government. With the most disgusting Obama-esque pretense of actually considering an iota of freedom, Geithner dismisses the idea that “[s]ome suggest that, as a government, we have provided too much support for housing,” with the bold executive decision, “It’s safe to say there’s no clear consensus yet on how best to design a new system.”[Note 3.]

Upon which Tim Geithner assumed that Tim Geithner is the best guy to design a new system.

NOTES

1. “Geithner Makes Case for U.S. Role in Mortgages,” Wall Street Journal, 18 Aug 2010, p. A6.

2. Yaron Brook, “Atlas Shrugged and the Housing Crisis that Government Built,” published in Fusion Magazine, Vol. 4, Issue 8, March 2009, http://www.aynrand.org/site/News2?page=NewsArticle&id=24013.

3. “Secretary of Treasury Tim Geithner Opening Remarks at the Conference on the Future of Housing Finance - As Prepared for Delivery,” US Treasury Department, 17 Aug 2010, http://www.ustreas.gov/press/releases/tg830.htm.

WSJ Letter-to-the-Editor

My letter-to-the-editor was published in Tuesday's Wall Street Journal:

In "Capitalism in Crisis" (op-ed, May 7), is Judge Richard Posner's conclusion that capitalism is inherently unstable intended to be ironic? His article accurately enumerates some of the causes of the financial crisis, including the sheer presence of a government-controlled central bank and the Fed's detrimental manipulation of interest rates. To this we could add government meddling in the housing market through Fannie Mae and Freddie Mac, the reduced lending standards imposed by government policies and programs, the government bailouts and safety nets (like the Federal Deposit Insurance Corp.) that encourage foolish risk-taking, etc. Judge Posner places the blame where it belongs: "not on the bankers . . . but on the government officials." What has any of this to do with capitalism? The evidence points to what should be obvious: It is not free markets that fail, but government-controlled ones.