http://www.pressdemocrat.com/article/20090209/OPINION/902060218/1044/OPINION02?Title=Monday_s_letters_to_the_editor
To: Ben Boyce
Director, Living Wage Coalition
Ben,
I would like to point out a staggering inaccuracy regarding your claim to the free market liability for the current economic crisis in your letter to the editor title “A New Paradigm” published in the February 9th edition of the Press Democrat.
Former Federal Reserve Chairman Alan Greenspan may make claims that free market forces are to blame for the current financial mess but that is a fallacy at best. The Federal Reserve is a government chartered private institution and can act independently, however it directly plays a pivotal role in influencing market boom and bust cycles by regulating money supply, buying equities and unfettered collusion with other International banks while being influenced by politicians in Washington more concerned by winning votes with constituents.
This influence exerted over the Federal Reserve by political will and not market forces was clearly evident by the Fed’s decision to systematically cut interest rates down to unheard of lows after the phony dot com bull market fizzled and then subsequent cranking up of the printing press buying US Treasuries to fund government backed economic stimulus plans poured massive amounts of nearly free liquidity into markets fueling the housing boom that should have instead gone through a contraction and mild recession following the dot com meltdown.
It is obvious that the investment banks are to blame for securitizing subprime mortgages into derivatives and other investment vehicles labeled with triple A ratings and selling these toxic assets as “secure” investments around the globe but looking back at the root cause of this the focus becomes clear that the near mass hysteria and run up in the housing market which created the subprime industry and securities market was directly caused by government legislation and manipulation of banking policy that allowed individuals with poor or no credit to attain mortgages on already over priced homes that they could not afford further fueled by the Federal Reserve’s reckless monetary policy and inflation of the money supply, neither of these factors is influenced by the free markets.
Furthermore the resultant bust and credit contraction we see today is a consequence of the free market naturally correcting itself as it comes crashing back down to reality from the euphoric high of the housing market and stark revelation that overleveraged sub-prime backed equities are in fact extremely toxic, are grossly overvalued, and will require substantial losses on balance sheets and retirement funds even to the point of bankruptcy for formerly sound banking institutions. But now of course the government is intervening in the market yet again with bailout money materialized out of thin air by the Federal Reserve fueling yet _another_ bubble, this time in the US Government Treasuries market that is going to have untold consequences when it goes bust.
Greenspan and current Fed Chairman Ben Bernanke may talk about the collapse of the free markets and cling desperately to con-artist claims of failures in capitalism but they are talking out both sides of their mouths as the Fed is the largest manipulator of the free market.
Misrepresenting the economic picture, even unknowingly, does nothing more than delude the uneducated masses into believing more government oversight and bailouts are the only answer when in fact we need the opposite. How can we possibly look to the same people squarely responsible for this financial catastrophe to now bail us out? The free market is the only force that can correctly re-value and shed these toxic assets but unfortunately that medicine involves some pain and is going to be hard to swallow.
Regards,
-Jim Sansi