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Walter Williams
Walter E. Williams
24 Sep 2014
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Our Government-Created Financial Crisis

Comment

Suppose you saw a building on fire. Would you seek counsel from the arsonist who set it ablaze for advice on how to put it out? You say, "Williams, you'd have to be a lunatic to do that!" But that's precisely what we've done: turned to the people who created our fiscal crisis to fix it. I have never read a better account of our doing just that than in John A. Allison's new book, "The Financial Crisis and the Free Market Cure."

Allison is the former CEO of Branch Banking and Trust, the nation's 10th largest bank. He assembles evidence that shows that our financial crisis, followed by the Great Recession, was caused by Congress, the Federal Reserve, Freddie Mac and Fannie Mae and was helped along by the Bill Clinton, George W. Bush and Barack Obama White Houses.

The Federal Reserve, under the chairmanship of Alan Greenspan, created the massive housing bubble by over-expanding the money supply. President Bush and members of Congress, through the Community Reinvestment Act, intimidated banks and other financial institutions into making home loans to people ineligible for loans under traditional lending criteria. They became subprime lenders. Lending institutions made these loans, now often demeaned as predator loans, because they knew they'd be sold to government-sponsored enterprises (GSEs) Freddie and Fannie.

The GSEs had no problem taking this risky path, because they knew that Congress would force taxpayers to bail them out. Current Fed Chairman Ben Bernanke is following in the footsteps of his predecessor by massively expanding the money supply by purchasing Treasury debt. He is creating prime conditions for a calamity by the end of this decade.

Then there were the crony capitalists, among whom are Goldman Sachs, Citigroup, Countrywide, Bear Stearns, JPMorgan Chase, General Motors and Chrysler. These and many other companies, through the thousands of Washington lobbyists they hire, are able to get Congress to shortcut market forces. Free market capitalism is unforgiving.

In order to earn a profit and stay in business, producers must please customers and wisely use resources to do so. If they fail to do this, they face losses or go bankrupt.

It's this market discipline of profits and losses that many businesses seek to avoid. That's why they descend upon Washington calling for government bailouts, subsidies and special privileges. Many businessmen wish not to be held strictly accountable to consumers and stockholders, who hold little sympathy for economic blunders and will give them the ax on a moment's notice. With a campaign contribution here and a gift there, they get Congress and the White House to act against the best interests of consumers and investors. Allison suggests that if our country had a separation of "business and state" as it does a separation of "church and state," crony capitalism or crony socialism could not exist.

Allison says that crony capitalism should not be our only concern. The foundation for economic collapse 20 to 25 years from now has already been set. Social Security and Medicare deficits, unfunded state and local pension liabilities, government operating deficits, baby boomer retirement and a failed K-12 education system have eaten out our substance.

What I take away from Allison's highly readable book is that our biggest problem lies in the Federal Reserve's ability to manipulate our monetary system to accommodate big government and use inflation to rob Americans. That's why politicians and government leaders everywhere hate a monetary system based on gold. They can manipulate the quantity of paper money, but they can't manipulate the quantity of gold.

Here's a tidbit of information about John Allison, now president of the Washington-based Cato Institute, that speaks to this man's morality as BB&T's CEO, which can't be praised highly enough. His company refused to lend money to developers who acquired land by having the government take it from private owners, euphemistically called eminent domain. That's putting his money where his mouth is, not sacrificing principle for the sake of earnings.

Walter E. Williams is a professor of economics at George Mason University. To find out more about Walter E. Williams and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate Web page at www.creators.com.

COPYRIGHT 2012 CREATORS.COM

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Comments

7 Comments | Post Comment
The unlimited flow of corporate money into elections has not helped this problem. Fully financing federal campaigns with tax dollars might be a bargain if we can reduce the power of corporate and union money to buy votes...
Comment: #1
Posted by: Mark
Mon Dec 10, 2012 10:21 PM
Sir'... What a lying sack of crap you are Mr. Williams... The Democrats went along with war, but they did not start it... They funded it by borrowing, but they did not start it... They bought into the notion that low taxes on the rich were good for business, but they did not invent that nonsense... They have tried to deal with the effects of capitalism without curing capitalism of its defects until now those effects spell disaster, but they do not know what they are dealing with any more than the republicans... Being pragmatic does not make anyone an arsonist, which is to say; A Criminal.. The only crime is any government trying to accomodate capitalism which is a bankrupt, bankrupting failure... The numbers do not add up for the workers, and the numbers do not add up for the environment, and the numbers do not add up for government unless one is referring to the meaningless numbers of the deficit...If capitalism cannot survive without putting everyone including people unborn who will never be born into the poor house, it is a bust... You cannot call a form of economy that destroys the nation which hosts it a success on any level...I am not going to call you a criminal because that would be too much of a complement... I will call you an idiot because you are...
Thanks...Sweeney
Comment: #2
Posted by: James A, Sweeney
Tue Dec 11, 2012 4:05 AM
Re: Mark... Sir, the idea that people who can afford to buy influence and elections cannot pay taxes is false on its face... Why; if they already have so much institutional protection from government must they buy influence in government??? The answer is simple: What the rich buy with elections is more money: freedom from taxation, or corporate welfare... Those bastards are the enemy, and if the Supreme Court cannot see it juding from an Antique Constitutiion, then they need to be replaced with the Constitution...
Thanks...Sweeney
Comment: #3
Posted by: James A, Sweeney
Tue Dec 11, 2012 4:10 AM
Folks;... The recent use of imminent domain to feed small holdings to the rich shows the reality of property and property rights which have always been in flux, and have never been a settled issue -ever... We think of kings as great because we imagine kings as we have them today, owning people as easily as they own billions in wealth or property... Not even kings held titles to their property in Feudal times... Everyone on the land had rights in the land, and no one owned it... A man recieved his fief from his master for a consideration, payment or service of some kind, and if it happened that the master slept with the man's wife, that man could de-fy him, that is, keep the property without due service... When the commons were closed as they were during the industrial age of Europe, a hereditary right in property was denied to those who owned it...Just like that, and it was gone...Those people, and corporations who think to take small holdings and turn them into large holdings because they might make better use of them are using the same argument as those who closed the commons...The Supreme Court bought that argument which should show everyone in the commonwealth made poor by the privatizing of the commonwealth just what is the nature of property in our modern society... If you think you own proeprty, all you own is a right in it that is not even exclusive, and if you cannot support the society that defends your rights in it, then your rights are not worth spit... The capitalist system is destroying the government which defends their rights and it is a dangerous game they play... Play on!!!
Comment: #4
Posted by: James A, Sweeney
Tue Dec 11, 2012 4:26 AM
Another outstanding article by Mr. Williams. I'm surprised CATO hasen't had him speak at one of their forums. Or else I missed it.
As usual, Sweeny makes it about Rs vs. Ds, but this problem goes way beyond the blame game, as both parties are complicent in this scam.
Mark, I think thats a teriffic idea. It cost the taxpayers way, way more to have their politicains beholden to special interests than if they paid for their campaigns themselves. It would be the bargain of all bargains to have them working for us for a change. We won't solve any other problems until we get the corruption problem under control.
Comment: #5
Posted by: Chris McCoy
Tue Dec 11, 2012 9:17 AM
Re: Chris McCoy... Corrupt governments destroy themselves before they ever consider reforming themselves, and in the process of self destruction, they often drag their people into destructive wars or make the sense of nation impossible to entertain... Under the threat of revolution, you will see corrupt governments act as though change is possible, but with order restored, the leaders are quietly strangled, and thrown in the Bosporus, metaphorically speaking...Individuals desiring change are more easily corrupted than accomodated, and it must be such a mass of people guided individually by a superior morality and too numerous to corrupt who will make change... Forget leaders... Everyone needs to learn to be their own leader as dangerous as that may seem... Do you think any in the tea party have any doubt that they are individually right, or that their morality is superior to that found in government...
Yesterday we saw the Michigan Government weaponized... It can do no good for the people, and so it has decided to do one group some harm... There was no ground swell of support for right to work... No one needs the right, so it is not a right.... It is an example of owning the vocabulary to own the minds of people; for who could be against a right??? The point is, that while the republicans in charge are class conscious, there is no union I have heard of that teaches class consciousness, and there are many children educated with union money in institutions made possible because of union contributions to society who as soon as educated show their gratitude by going republican and attacking the working class... Republican government could do, and did what I could never have done, and that is: to give the unions a sense of their class and relative position in society...Let the republicans cry about class warfare when the shoe is on the other foot....
Comment: #6
Posted by: James A, Sweeney
Wed Dec 12, 2012 5:52 AM
Re: James A, Sweeney: You think that low taxes on the rich caused this crisis? What an idiot you are. So I guess the government, in its infinite wisdom, takes our money so we don't go out and cause recessions with it. Remember, the government takes your money for your own good, citizen!
Comment: #7
Posted by: Matt D
Mon Dec 17, 2012 6:02 PM
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