Role of the government in generating the financial crisis

(Cross-post from my other blog, Freedom Is Moral)

“[…] many of the financial institutions that contributed to the problem were crony capitalist. Business leaders can have confidence in the working of free markets. It is government interference in markets that they should fear.”

John A. Allison

That’s the opening quote in Pablo Paniagua’s review of Mr. Allison’s book, The Financial Crisis and the Free Market Cure: Why Pure Capitalism is the World Economy’s Only Hope

Mr. Allison was a long-serving CEO of BB&T Bank. He saw the interference of government in the banking industry up close and personal.

Those icky, greedy bankers and icky greedy Wall Street financiers played a role in our current mess, but minor compared to the interference and misdirection and forced distortions arising from various federal agencies.

An overview of the mess we are in:

The book extensively reviews how government entities have shifted incentives across our society, leading to a radical change of human behavior in America. Mr. Allison provides extensive facts disproving that the financial crash was due to both a sudden burst of Wall Street greed as well as increased deregulation in the banking sector. Instead, he explains how extreme arbitrary financial regulations, reckless monetary policies and government-supported institutions like Fannie Mae and Freddie Mac pushed banks into seeking sub-prime markets and higher risks, leading towards meltdown.

Four major themes outlined in the review:

The first pinpoints government as the fundamental source of the crisis and how its policies altered the incentives of millions of Americans.

The second theme tours government policies’ ever-increasing distortions that fueled the housing bubble;

The third topic focuses on how financial institutions worsened the situation, portraying them as nothing more than crony-capitalists which should have failed.

The last theme highlights our key philosophical misconceptions: current government policies are inconsistent and contrary to our country’s philosophical foundation.

You won’t hear it in the major media sources, but there are specific policies from various agencies that forced banks and others to take certain steps. Two of a long list of examples. Those zero down loans and no-doc loans? Those weren’t created by lenders. Those came from the feds. Market dominance by three credit rating agencies that have now been sued for their role? Banks were required to have investments that were approved by one of those three.

You can find The Financial Crisis and the Free Market Cure at Amazon. Just downloaded a copy to my Kindle. After just a few pages, I can tell this will be a great read.

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