Here are some fun facts to help debunk the myth creation that the Market crash of 2008 and the bubble that led up to it was entirely the fault of the private sector. The sad thing about our democratic government is that like non democratic government it is impossible to get government to take the blame for their own mistakes. Part of the reason is that in America is that government elected officials are not fixed in place the way monarchs are. The funny thing is that some monarchs are willing to assign blame to their appointed government officials and can dispose of incompetents and dishonest individuals. The Market crisis has invited all sorts of revisionist historians into revive myths that were thought to be long dead. The spin management is to blame you for having too much freedom and too many economic choices, too much wealth and too many resources. To top that you are wasteful and you need government intervention in every aspect of your life because you cannot take care of yourself let alone anyone else. The funny thing is that the government created most of the problems in the first place so you have to be a little suspicious about their motives in trying to grab more power at your expense when they are not taking any credit for the on going disaster and crisis.
Here are two recent examples where government took virtually no responsibility, Cases even went to the US supreme court where a hearing was flat out rejected. After 911, we found out that the FBI failed to share information about the terrorists that carried out the 911 attacks. The excuse was made that a law created by Senator Frank Church was at fault. The law made it illegal for one government agency like the FBI to share evidence and other information with the CIA. Almost everyone in the major media fell into bed with that lie. The FBI was never prohibited from alerting the executive branch, which we call the administration for a reason . And the administration legally could go and tell the CIA to look into the allegations. It did not happen. Government agencies that steal pens and pencils on a daily basis were worried about getting in trouble for illegal sharing of good leads in a domestic terrorism investigation. No one got fired. No on in the government got reprimanded. Lots of people died.
Hurricane Katrina hit New Orleans, The Army Corp of Engineers admitted that they were too busy building a fancy new New Orleans headquarter building and planning to put bicycles paths on top of what they knew were failing levies. New radar satellite data showed that the old New Orleans levies had subsided and need major rebuilding repairs. Then came the FEMA Catastrophe to top that off. No one got blamed and certainly not fired. Except for new agency heads at the top the same people responsible are still controlling these agencies. In Old Stalin’s Russia they would have been shot not just relieved of their positions. Some of us wonder how Stalin was able to be as successful as he was getting things done considering that the communist state was an economic basket case from day one. This might have been his secret method. In America we used to be able to fire people but that was before our government employees became members of the elite nobility and the mandarins of modern American Confucianism.
You read and hear on every day that the reason why the real estate bubble caused the sub prime mess and resulted in “toxic assets” on the books of major corporations because corporations were corrupt and incompetent. That is party true, but going back to the Reagan Resolution Trust Company liquidation in our last major real estate bubble crash the reason for the bubble was inflation expectations and excess liquidity created by government. Nearly the same thing happened again culminating in 2007 and 2008 with a rash of foreclosures. Banks and Broker Banks were willing to loan tons of money with no safety margin in the way of collateral in the mistaken belief that inflation is inevitable because of government’s fondness for printing money. Homes that were once $250,000.00 were selling for $800,000.00 and some part of the price increase was known to be inflation. Most banks were making the same calculations and compounding inflation rates year after year to come to the same conclusion. At the same time house values seemed to be appreciating in the real world with healthy sales stimulating new home construction on a massive level, Clear deflationary forces were also apparent. Much of the deflationary price information was coming from off shore industrial production in places like China. Blaming free trade is blaming a great success of government. The inflation expectations were unfortunate. There was excess liquidity but what banks like most everyone else did not realize is that US liquidity was getting sopped up like a sponge by foreign industrial exporters and converted in to US treasury debt. The US treasury debt instantly takes excess dollars out of circulation so what seemed like inflation was not as bad as government produced numbers seemed to say it was. People buying homes were bidding them up wildly in a nationwide orgy of greater fool theory. Then the President Bush brought in some new cabinet level officers who decided out of the blue that the way to save manufacturing in the US from a complete Chinese take over was going to require a US dollar devaluation. This idiotic idea, about to be repeated on a new catastrophic level in the next administration, gave us gasoline over $4.00 a gallon and caused a loaf of bread to become $3 or more. Government policy , again was completely at fault.
The markets were getting the wrong signals and the wrong data. Try as hard as some of us did we could not get real estate to pencil out as any sort of long term investment but the public believed otherwise. Higher and higher market prices sure started to seem convincing for those of us who knew we had missed our chance to ever buy a home when mortgages would cost 3 to 4 thousand dollars a month just to own your own home. Because the public became wise to inflation and started protecting themselves accordingly it did not help that government statistical data was incorrect. Some of us suspected deflation was hidden under the surface but it was hard to prove. Government statistics suggested it was there. The investment brokers and the stock markets were calculating security valuations based in part on the same inflation expectations. This could be seen as a comedy of errors with enough blame to go around but now that people like Paul Krugman are big glamor star Nobel economists saying things like monetarism was at fault are not exactly being honest with what really occurred. Certainly monetarism had its failings but growth in government had never ended not even after the rhetoric of Ronald Reagan left office because he left a bigger government than he found when he entered the office of President, Not one subsequent president after Reagan stopped the exponential growth in government. Investment firms helping people save money for retirement and other reasons were forced to look for investments they could get a fee out of for themselves and to counter act perceived inflation caused almost entirely by the non stop growth in government. This created the myth that homes were a best investment and that stocks could resist a loss of future purchasing power. The growth of wealth in the country proved more of an illusion than anticipated . Governments want to assess the national wealth as high as possible to take their percentage cut so a great vicious circle was set in motion.
How much blame does the government get for this? Lots. It gets worse. Government created some of the most unsustainable too big to fail corporations that failed. Included on the list: Fannie Mae, Freddie Mac and Citigroup. The FDIC fostered the growth of mega nationwide thrifts like Washington Mutual which could have been more limited in size before failing. Back in the days of the RTC, the government expressly decided which banks were going to survive that previous real estate crash. I recall Washington mutual survived the audit process. Other government intervention prior to this crash were bail outs of some of the same exact investment banks that failed this time around. To prevent a market melt down here before government official bailed out the major investment banks several times before at the cost to the tax payers. We bailed out investment firms for their poor investments prior to the Mexican loan crisis and Asian default crisis not too long before. The same badly managed super banks and investment houses were allowed to grow in size with the same bad management in place to reach the next catastrophic crisis phase. Not only that but Presidents were seduced to put a series of big investment bank super Enron style traders rather than real bankers in the position of the secretary of the treasury. Government takes no blame. It is your fault for electing those presidents from those political parties you trust. Government forced banks to make no collateral loans as government became frustrated that public housing plans of the past had totally failed, but it was not their fault , it was yours. In order to correct for the housing project mess government decided it was time to re integrate the project residents back into the general community and passed laws to force banks to make loans to people who really would never be able to afford the kind of housing the government now suddenly wanted to make available with pride of ownership.
Other government blame can be assessed. One type of blame is that for a major non expansionary war for the ideals of humanitarian goals when history shows that fighting a war for the purpose of grabbing spoils of victory is more sensible. In a pure economic and historic point of view, if the war in Iraq was really for oil , our economy would be way better off today. I am not condoning war for stealing a nation’s wealth just making the point that the way successive Roman Emperors maintained their financial power and relative stability was in corporate ownership of foreign provinces and the taxation of those provinces. Wars in the US have become predictable economic boom times just like the Iraq war proved to be and for blame assessment? Well the Bush administration conquers the country and then allows Iraq to rejoin OPEC in a sort of perverse sort of gratitude for the American expense. There is a little blame there. The re-exploration of Iraqi oil fields with the latest technology will however eventually probably surpass Saudi oil reserves of easy to get oil supplies given data from Kuwaiti fields where it is known it is possible to drain the oil fields without pumps using oil pipe plumbing that flows down hill in elevation.
The I told you so people who knew we were in a bubble have been really fast to blame the rest of us instead of our government for the present problems and the reason why is they are hungry for government positions of power and influence. You don’t bite the hand you want to feed you if you are a good dog.
Yes there were plenty of corporate crooks who did their part deserving blame but to say that just because government meant well is no excuse not to assign it blame. Remember you are to blame for all government failings and for the failings of your natural capitalist tendencies. Government is here to help save you if you are willing to give up more and more of your basic rights and your independence from central control mechanics. You will be happier with your puppet strings attached according to the code.