The Unfree Market Has Failed - Yaron Brook
September 21st, 2008 | by Brian |A press release by the Ayn Rand Center for Invidual Rights:
“Everyone is blaming ‘the free market’ for today’s financial crisis,” observed Yaron Brook, executive director of the Ayn Rand Institute. “But we should be blaming the unfree market. The mortgage and financial markets have been thoroughly controlled by government–and that is why they failed.
“It was the government’s hand in the creation of Fannie Mae and Freddie Mac, the Federal Reserve Board’s inflationary policy of keeping interest rates artificially low, the irrational lending standards forced on lenders by the federal Community Reinvestment Act, and the quasi-official policy of bailing out large financial institutions deemed too big to fail, that contributed to creating a situation in which millions of people were buying homes they could not afford, in which the participants experienced the illusion of prosperity, in which billions upon billions of dollars were going into bad investments.
“We do not need more regulation or economic ‘supervision.’ What we need to do is remove the government’s power to coerce, bribe, reward and bail out irrational decisions. The unfree market has failed. It’s time for a truly free market.”
The Investors Business Daily has also mentioned the Community Reinvestment Act.
(via Ari Armtrong)
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One Response to “The Unfree Market Has Failed - Yaron Brook”
By nub on Sep 22, 2008 | Reply
I’m calling BS on this. In what way did the Community Reinvestment Act force mortgage brokers to make no-income/no-asset loans to people who couldn’t afford them? Did someone hold a gun to their heads? No, this guy is just looking for a (Democratic) scapegoat. The mortgage crisis was a result of a perfect storm - you had a vastly increased global savings pool with a huge appetite for mortgage-backed securities due to a US housing market that - in the late 90s/early 00’s - seemed like it could only go up, up, up. Combined with some poor data analysis (in particular, default rates that were no longer operative) and lax oversight, you had brokers willing to engage in extremely predatory (and profitable, and, ultimately, stupid) lending on a massive scale. Not to mention a healthy amount of plain-old fraud to hide what they were doing.
From what I understand, the CRA requirements are rather open-ended, so it seems a bit ridiculous to hold it responsible for the very specific actions of these institutions. Ultimately it is the lenders’ responsibility for making the kinds of loans that any rational person could see was an extremely risky and short-sighted venture.
Brian replies: Wikipedia’s CRA page has a section about whether CRA requirements contributed to the subprime debacle with links to arguments on both sides.