The Financial Crisis, Foreseeable and Preventable
When a government bails out an auto company or any bank, it essentially charges the central bank (our Federal Reserve System) with transferring the risk from that company to the government, i.e. taxpayers. We've known this and many other basic economic truths for many years. Yet despite all the claims to ignorance by Washington and the media conglomerates, here are some other economic truths that should have tipped off policy experts to the financial implosion in 2008.
We’ve Known for Thousands of Years
We’ve known for literally thousands of years that debts need to be periodically written down, or the entire economy will collapse. And see this.
We’ve known for 1,900 years that rampant inequality destroys societies.
We’ve known for thousands of years that debasing currencies leads to economic collapse.
We’ve known for hundreds of years that the failure to punish financial fraud destroys economies.
We’ve known for hundreds of years that monopolies and the political influence which accompanies too much power in too few hands is dangerous for free markets.
We’ve known for hundreds of years that trust is vital for a healthy economy.
Of particular interest is the last statement above, that trust is vital for a healthy economy. While this may seem obvious, actually creating trust and confidence in a market becomes more difficult as government interventions increase. Governments intervene in markets when they fail, but when a government fails due to market intervention (stimulus/deficit spending), one has to ask whether such actions are sufficiently warranted. Adam Smith issued a solemn, yet practical, warning against misdirected government intervention and the interests behind them.
Continued on the next page"The interest of the dealers, however, in any particular branch of trade or manufactures, is always in some respects different from, and even opposite to, that of the public. To widen the market and to narrow the competition, is always the interest of the dealers. To widen the market may frequently be agreeable enough to the interest of the public; but tot narrow the competition must always be against it, and can serve only to enable the dealers, by raising their profits above what they naturally would be, to levy, for their own benefit, an absurd tax upon the rest of their fellow-citizens. The proposal of any new law or regulation of commerce which comes from this order, ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the pubic, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it" (Wealth of Nations, 287-88. Modern Library Edition).
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