John Allison describes a number of the myths floating around in his article at Forbes. I read it in the 12-10-12 paper edition of Forbes, but can’t find it online. Was able to find it here: The Financial Crisis and the Bank Deregulation Myth.
Here’s two old myths:
One is that the ‘robber barons’ took advantage of the common man to create their fortunes. In fact, great industrialists, like John D. Rockefeller, dramatically improved the quality of life for everyone. Another myth is that President Roosevelt’s New Deal ended the Great Depression, when in fact the Depression did not end until after WWII when his policies were abandoned.
If you want a few hundred pages of background on how the New Deal made the Great Depression worse and extended it, check out The Forgotten Man. It’s great.
Actually the book is depressing because it requires an extended view of the destruction caused by the New Deal.
The current myth is that the slump in ’08 was caused by those mean ol’ nasty money-grubbing bankers that shoved zero doc, adjustable rate mortgages down the throats of innocent, naïve borrowers and held their hand in an iron grip while forcibly making them sign contracts they weren’t allowed to read (very mild exaggeration included).
Not so fast.
The actual source of our current slump is from a completely different direction:
The real cause of the financial crisis was a combination of mistakes by the Federal Reserve, along with government housing policy, which was implemented by Freddie Mac and Fannie Mae. Neither would have ever existed in a free market.
Left out of that two sentence summary is the role of the Congress in forcing Fannie and Freddie to adopt those policies and banks to participate.
At the core is the idea that you have the right to own a house that is funded by someone else even though everyone knows you cannot afford it.
Who funds my ‘rights’? Mr. Allison continues:
Everyone has the right to a nice house. Provided by whom? Everyone has the right to free medical care. Provided by whom? My right to free medical care is my right to force a doctor to provide that care or to force someone else to pay for my doctor. All of this runs counter to the traditional American concept of rights.
What is in play is the idea that I have the right to your money because I feel like it. If we didn’t wrap this in all ‘rights’ language, we might have to call it something else. If it weren’t the government beneficently taking from you and giving to me because the government said it was beneficent to do so, I might need to consider whether your rights might have been violated.
Check out the full article.
(This was initally posted on my other blog. Realized as soon as I hit “publish” that it belonged on this blog, so I moved it. Sorry for any confusion.)