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Government, the Downturn, and Responsibility

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These letters [2] in yesterday’s Wall Street Journal are worth reading:

The Weekend Interview with Nouriel Roubini: ‘Nationalize’ the Banks [3]” (Feb. 21) once again demonstrates that the credibility of economists is inversely related to their level of celebrity and their proximity to political power. To paraphrase Lord Acton: Celebrity corrupts, and political celebrity corrupts absolutely. Mr. Roubini tells us that markets fail and have failed to clear because of excesses, greed and irrational exuberance.

Amazingly, Mr. Roubini makes no mention whatsoever of the government interventionism that is largely the cause of our current crisis. Was the Federal Reserve’s policy of holding interest rates below the real rate of interest and thereby causing a credit bubble and debt-fueled consumption a market failure? Or was the market failure that market participants did not read F.A. Hayek’s “Monetary Theory and the Trade Cycle and divine the peril that was not being signaled through the price mechanism? Or does Mr. Roubini consider it a market failure that lenders were coerced by the government to make mortgage loans that never would have been made based on market-driven underwriting standards? Is the failure of unqualified homebuyers to decline the cheap, no-down-payment loans that lenders were coerced to offer them another market failure? Was it market failure that lenders knew they would never have to suffer the consequences of reckless underwriting when they could dump their rotten portfolio on the taxpayers via the government-backed Fannie Mae and Freddie Mac?

Robert Drane
Lakewood Ranch, Fla.

It is a matter of public record how we reached the point where the idea of nationalizing the banks arose. I doubt even the most cunning and unscrupulous member of Congress foresaw the ultimate prize, when under the guise of minority home ownership, they put us on the path to crisis.

Now picture the likelihood that a Sen. Chris Dodd or a Rep. Barney Frank could pressure loans to be made or withheld, and this without public knowledge of where money is being directed. Political contributions would flow from the chosen back to politicians.

It is not enough to control the federal Treasury. By nationalizing the banks, a huge slush fund, safe from prying eyes will be created. Who needs a dictator when we have the U.S. Congress?

Joel Brandes
Chestertown, Md.

Mr. Roubini totally misses the mark about what Alan Greenspan got wrong. The former Federal Reserve chairman spent a career playing the Wizard of Oz, pulling the levers to set the price of money. As the ultimate master of the universe, free markets were not allowed to set interest rates and properly allocate capital. Far from taking Ayn Rand’s view of the world to an extreme, his implementation was just the opposite — he knew better where to set the price of money. Sadly, now that the wizard has been revealed, we have so many willing to accept his explanation on how free markets let us down. No, Mr. Greenspan, you did.

Dale Meyer
Madison, Wis.

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