Are We Learning Anything?

On this site you'll read on a regular basis our views on liberty and government interference in the market. A free market based on two parties mutually agreeing to provide goods and/or services to one another for a mutually agreed upon compensation does not include a third party controlling or artificially setting the conditions for the exchange.

Our current financial crisis was caused by a third party setting artificial conditions in the market place that ultimately weren't in the best interests of either of the original parties. Of course the third party we're talking about here is the federal government and the politicians that set policy based not on the long term financial health of lenders and borrowers, but on their own short term political health.

Thomas Sowell calls it stage one thinking - the concept that politicians generally think no further than their next election. As a result they're reluctant to head-off a crisis that won't occur until well after the next election. The looming social security crisis is a perfect example of an impending catastrophe that elected officials will not act to avert.

The simple explanation of the current situation and how we arrived here is that politicians interfered in the market place through the quasi-private Fannie Mae and Freddie Mac organizations making it profitable to lend money to people who could not afford to repay the loan. The government backed Freddie and Fannie bought loans from lenders that gave loans to people that should not have them. Where there's a guaranteed sale someone will come along with a product to sell.




To make matters worse, interest only loans were being handed out like candy on Halloween. These loans were sold to people as a way to get into a bigger home for a payment that they could afford. The scheme worked fine as long as property values continued to rise. When values leveled off and then fell precipitously, property owners and the financial institutions holding the note were upside down.

Now we have politicians trying to decide whether or not to spend close to a TRILLION of our tax dollars to fix the mess that they created in the first place. The lesson to be learned here is that quasi-government entities run by political appointees with near limitless financial power have no place in a free market.

Political interference created this mess it's insane to believe that increased government involvement will be the long-term solution - mainly because a good portion of the politicians running the government aren't thinking beyond November. Our fear is that we haven't learned anything and that this whole experience will result in a vast expansion of the federal government into a market that is becoming less and less free.