Friday, October 10, 2008

Regulators Cannot Avert Next Crisis

Johan Norberg of the Cato Institute makes the point that Regulators Cannot Avert Next Crisis.

But since every crisis has led to thousands of new pages of regulation, why is it that regulation doesn't stop crises from happening again? No matter what pundits say, we are nowhere near a laissez-faire situation. Look no further than the US federal institutions in Washington, DC, and we find 12,113 individuals working full time to regulate the financial markets. What did they do with the powers they had?

Made mistakes. American politicians, central banks and regulators were just as eager as speculators to expand the housing bubble. They just had a bigger pump.

The US Federal Reserve lowered interest rates from 6.5 percent to 1 percent between 2001 and 2003, and housing prices soared. Starting in 1995, the government threatened banks and thrifts with regulations and legal challenges if they did not extend more loans to poor neighbourhoods and a government-sponsored company such as Fannie Mae used its state guarantees to purchase more risky loans and expand the sub-prime market.

Is the solution to the crisis really to give more power to people and institutions that contributed to bringing it about?

2 Comments:

Anonymous rose said...

Paul Krugman won the nobel prize for economics. What a joke. I've never read one piece from that guy where his conclusions were reached objectively through any sort of scientific method.

10:30 AM  
Blogger lonely libertarian said...

I've read some things in the blogosphere today from libertarians and free market economist types who say Krugman actually is deserving, particularly for his work on international trade and the growth of cities. Apparently, the academic Krugman is not quite what we read in the op-ed section of the New York Times.

3:32 PM  

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