The View From 1776
Thursday, December 04, 2008
The Blame Game
No one wants to accept personal responsibility for disaster. It’s easier to point fingers at someone else.
Collapse of the subprime mortgage market and, along with it, the housing boom and financial markets, pulls everyone into the act. All of us have been injured to some degree, and we want a scapegoat.
Politicians, who enacted laws supporting the housing bubble, want to hang Wall Street executives. Liberal-progressives condemn free-market capitalism. Some see a dark conspiracy in which President Bush caused, or allowed to happen, the 9/11 terrorist attacks and the present financial debacle in order to benefit his rich supporters.
My own analysis is that the root cause was too much money sloshing around the world, leading to low interest rates that pushed investors into riskier assets to gain higher returns. For that we can blame Federal deficit financing (FDR’s New Deal and all subsequent administrations), Keynesian economics, and the 1946 Employment Act telling the Fed to fund deficit spending in order to support full employment.
An interesting take on the latest financial bubble is provided by Henry Blodget in the Atlantic Monthly. In Why Wall Street Always Blows It, Mr. Blodget reminds us that he was at the center of the late 1990s dot.com bubble burst, which gives him useful insights on the current fiasco. He concludes that there’s plenty of blame to go all around and that actions and expectations at the time were not altogether irrational. Nor were they entirely criminal, as liberal-progressives yearn to believe.
To quote Mr. Blodget:
Alan Greenspan did keep interest rates too low for too long (and if you