The View From 1776
Saturday, March 22, 2008
Liberals’ Wall Street Pirouette
Liberals blaming the takeover of Bear Stearns on capitalism is akin to blaming the homeowner if someone sets fire to his house.
Washington Post columnist E. J. Dionne, Jr. blames capitalism for the Wall Street meltdown that led to the collapse of Bear Stearns and its acquisition by J. P. Morgan Chase with financial support by the Federal Reserve. Needless to say, Mr. Dionne uses his analysis to praise collectivist government intervention in the style of Franklin Roosevelt’s New Deal alphabet agencies.
I don’t fault Ben Bernanke, the Fed chairman, for being so interventionist in trying to save the economy. On the contrary, Bernanke deserves credit for ignoring all the extreme free-market bloviation.
Undeniably, there was gross imprudence in the fantastic degree of leveraging by investment banks to underwrite structured investment vehicles and, in Bear Stearns’s case, to carry the riskiest tranches thereof for a seasoning period before dumping them into the secondary market.
In the same fashion, there was gross imprudence among the baseball players who used steroids, but that is no reason to condemn the game of baseball.
The real villain in this set of events in the Federal Reserve itself. See Federal Intervention Always Has Negative Results.
Human beings, from the wage-earning homeowner to the Wall Street tycoon, will always find ways to use huge amounts of money when the economy is awash in liquidity created by the Fed’s deliberate policies (what Fed chairman Bernanke laughably called, a few months ago, “a worldwide glut of savings”).
The Fed’s rampant expansion of the money supply gave false signals to the entire economy, leading individuals to go on a spending binge, buying automobiles, gizmos, and homes on credit. The New York Times reported:
...personal debt in the United States is $13.8 trillion, including mortgage debt, slightly less than the country