BuckeyeBlog

The fight over what lesson to take from the roots of the Great Credit Crisis of 2008 is important. The Left’s contention that a lack of government is at cause cannot be allowed to prevail if the consensus over the superiority of neo-liberal, free market economic systems is to survive.

This new piece by AEI’s Peter Wallison puts the truth as succinctly as anything I’ve read:

The current financial crisis is not–as some have said–a crisis of capitalism. It is in fact the opposite, a shattering demonstration that ill-considered government intervention in the private economy can have devastating consequences.

The crisis has its roots in the U.S. government’s efforts to increase homeownership, especially among minority and other underserved or low-income groups, and to do so through hidden financial subsidies rather than direct government expenditures. The story is an example, enlarged to an American scale, of the adverse results that flow from the misuse and manipulation of banking and credit by government.

When this occurs in authoritarian regimes, we deride the outcome as a system of “policy loans” and note with an air of superiority that banks in these countries are weak, credit is limited, and financial crises are frequent. When the same thing happens in the United States, however, we blame “greedy” people, or poor regulation (or none), or credit default swaps, or anything else we can think of–except the government policies that got us into the disaster.