“In these pages I argue that, but for the housing policies of the U.S. Government during the Clinton and George W. Bush administrations, there would not have been a financial crisis in 2008. Moreover, because of the government’s extraordinary role in bringing on the crisis, it is invalid to treat it as an inherent part of a capitalist or free market system, or to use it as a pretext for greater government control of the financial system…

…I do not absolve the private sector, although that will be the claim of some, but put the errors of the private sector in the context of the government policies that dominated the housing finance market for the fifteen years before the crisis, including the government regulations that induced banks to load up on assets that ultimately made them appear unstable or insolvent.”, Peter J. Wallison, Hidden in Plain Sight: What Really Caused The World’s Worst Financial Crisis And Why It Could Happen Again

Excerpt from the Preface, Hidden in Plain Sight: What Really Caused The World’s Worst Financial Crisis And Why It Could Happen Again, Peter J. Wallison, January 2015:

“During the Depression era, it was widely believed that the extreme level of unemployment was caused by excessive competition. This, it was thought, drove down prices and wages and forced companies out of business, causing the loss of jobs. Accordingly, some of the most far-reaching and hastily adopted legislation…..such as the National Industrial Recovery Act and the Agricultural Adjustment Act (both ultimately declared unconstitutional)….was designed to protect competitors from price competition. Raising prices in the midst of a depression seems wildly misguided now, but it was the result of a mistaken view about what caused the high level of unemployment that characterized the era.

In the 1960s, Milton Friedman and Anna Schwartz produced a compelling argument that the Great Depression was an ordinary cyclical downturn that was unduly prolonged by the mistaken monetary policies of the Federal Reserve. Their view and the evidence that they adduced gradually gained traction among economists and policy makers. Freed of its association with unemployment and depression, competition came to be seen as a benefit to consumers and a source of innovation and economic growth rather than a threat to jobs.

With that intellectual backing, a gradual process of reducing government regulation began in the Carter administration. Air travel, trucking, rail, and securities trading were all deregulated, followed later by energy and telecommunications. We owe cell phones and the Internet to the deregulation of telecommunications, and a stock market in which billions of shares are traded every day….at a transaction cost of a penny a share…..to the deregulation of securities trading. Because of huge reductions in cost brought about by competition, families don’t think twice about making plane reservations for visits to Grandma, and we take it for granted that an item we bought over the Internet will be delivered to us, often free of a separate charge, the next day. These are the indirect benefits of a revised theory for the causes of the Depression that freed us to see the benefits of competition.

We have not yet had this epiphany about the financial crisis, but elements for it….as readers will see in this book….have hidden in plain sight. Accordingly, what follows is intended to be an entry in a political debate….a debate that was framed in the 2008 presidential contest but never actually joined. In these pages I argue that, but for the housing policies of the U.S. Government during the Clinton and George W. Bush administrations, there would not have been a financial crisis in 2008. Moreover, because of the government’s extraordinary role in bringing on the crisis, it is invalid to treat it as an inherent part of a capitalist or free market system, or to use it as a pretext for greater government control of the financial system.

I do not absolve the private sector, although that will be the claim of some, but put the errors of the private sector in the context of the government policies that dominated the housing finance market for the fifteen years before the crisis, including the government regulations that induced banks to load up on assets that ultimately made them appear unstable or insolvent. I hope the readers will find the data I have assembled informative and compelling. The future of the housing finance system and the health of the wider economy depend on a public that is fully informed about the cause of the 2008 financial crisis.”

Posted on January 29, 2015, in Postings. Bookmark the permalink. Leave a comment.

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