Here’s a letter-to-the-editor of a newspaper by Steve Horwitz (which I lifted from his Facebook page):
Letters to the Editor
Watertown Times
260 Washington St.
Watertown, NY 13601To the Editor,
In his letter of October 23 criticizing George Will’s column on Elizabeth Warren, Mark MacWilliams of Canton repeats a number of fallacies about the recession and financial crisis that should not go unchallenged.
MacWilliams refers to Congress deregulating the financial industries but offers no specifics. In fact, since 1980, Congress has passed four new sets of regulations for every one deregulatory act, and between 2001 and 2008, there were nine new sets of regulation and not one bit of deregulation. Those recent regulations included the Basel capital requirements, which created powerful incentives for banks to sell off the mortgages they originated and buy them back as mortgage backed securities, which they otherwise would not have done.
Contrary to MacWilliams, our current mess was not the result of “predatory capitalism,” but the predictable consequence of government intervention and crony corporatism. Nowhere does he mention the Federal Reserve’s role in pushing interest rates so low that banks were being paid to borrow, nor does he have a word to say about Fannie Mae and Freddie Mac having privileged access to the Treasury to buy up all of the questionable mortgages that banks originated. He also ignores two decades of Congress’s role in mandating that banks lend to marginal borrowers.
MacWilliams needs to ask himself why, if this was really capitalism, banks would make loans to people they thought could not pay them back. If corporations are greedy profit-seekers, why would they risk customers not being able to pay unless they believed that those mortgages could be sold off to government-sponsored enterprises like Fannie and Freddie who would, as they did, get bailed out by the government?
If all the traffic lights in Watertown were stuck on green, we’d hardly blame the drivers for the ensuing accidents. When government distorts the signals and incentives facing producers and consumers, the blame for the resulting disaster should fall on government not the private sector. The crisis and recession are what happens when you put “people before profits.”
Finally, MacWilliams should learn who does assure that his toaster doesn’t explode by actually looking at it. He’ll find the stamp of not a government agency, but Underwriters Laboratory, a private firm that provides quality assurance for appliance makers and consumers. Unlike the government cartel of financial rating agencies that failed miserably last decade, the privately operated UL has decades of success behind it.
Sincerely,
Steven Horwitz
