Blame the Occupants

Massive government intervention in the banking system is driving the political left into delirious pronouncements that the free market is finally dead.

It is also driving conservatives and libertarians into apoplexy for the same reason.

Neither side has it right. Since the creation of the Federal Reserve in 1913, the banking system has been a government construction, from its foundation to the top floor. Within this imposing structure, most bankers have tried to operate according to the laws of the market, but government has repeatedly destabilized those laws by arbitrarily ignoring or rewriting them.

Consumers and bankers are both the victims of a massive government failure, not a market failure. It was not greed that led consumers to borrow too much money, and it was not greed that led bankers to lend it. It was not greed that led investment banks to turn those loans into securities, and it was not greed that led investors to buy them. All along the way, through this chain of economic decision making, one thing remains constant: government encouraged consumers to borrow, encouraged bankers to lend, encouraged investment banks to securitize loans, and encouraged investors to invest. More than any other agent, government is to blame.

Blaming the market for the collapse of the entire structure is like blaming the occupants of a building for its shoddy construction, not the architects.