Blame Government, Not Greed – and, Please, Ignore Central Banking
By Staff News & Analysis - October 14, 2011

There is no mystery where the Occupy Wall Street movement came from: It is an offspring of the same false narrative about the causes of the financial crisis that exculpated the government and brought us the Dodd-Frank Act. According to this story, the financial crisis and ensuing deep recession was caused by a reckless private sector driven by greed and insufficiently regulated. It is no wonder that people who hear this tale repeated endlessly in the media turn on Wall Street to express their frustration with the current conditions in the economy. Their anger should be directed at those who developed and supported the federal government's housing policies that were responsible for the financial crisis. – Wall Street Journal

Dominant Social Theme: Look here, look here … It's government policies, see! Don't look THERE. Don't look at central banking. Look away from there. Look here … at government.

Free-Market Analysis: Peter Wallison, a senior fellow at the American Enterprise Institute and member of the Financial Crisis Inquiry Commission has had a high profile of late, publishing several articles in the Wall Street Journal (see excerpt above) blaming government rather than the private sector for the 2008 meltdown.

When the Financial Crisis Inquiry Commission (FCIC), he tells us, reported in January that the 2008 crisis was caused by "lax regulation, greed on Wall Street and faulty risk management at banks and other financial firms, few were surprised."

Wallison differs. The crisis wasn't the fault of the private sector, he writes. It was the fault of the government. Unfortunately, when Wallison states it was the government's fault, he has a fairly specific idea about "government." His government analysis seems to leave out the leading cause of the disaster – central banking policies.

It is central banking's money creation and low interest rates that created the fuel for this last catastrophic bust that has – evidently and obviously – virtually ended the dollar reserve system. But that's not Wallison's emphasis.

He's obviously in the business of helping create the power-elite meme that public and private institutions were responsible for the current meltdown – but not central bank monetary price fixing. That would be hitting too close to home. Here's some more from his latest article at WSJ:

Beginning in 1992, the government required Fannie Mae and Freddie Mac to direct a substantial portion of their mortgage financing to borrowers who were at or below the median income in their communities. The original legislative quota was 30%. But the Department of Housing and Urban Development was given authority to adjust it, and through the Bill Clinton and George W. Bush administrations HUD raised the quota to 50% by 2000 and 55% by 2007 …

It is certainly possible to find prime borrowers among people with incomes below the median. But when more than half of the mortgages Fannie and Freddie were required to buy were required to have that characteristic, these two government-sponsored enterprises had to significantly reduce their underwriting standards. Fannie and Freddie were not the only government-backed or government-controlled organizations that were enlisted in this process. The Federal Housing Administration was competing with Fannie and Freddie for the same mortgages. And thanks to rules adopted in 1995 under the Community Reinvestment Act, regulated banks as well as savings and loan associations had to make a certain number of loans to borrowers who Save Like 2K Mary O'Grady and Mary Kissel on how New York's economy and budget depend on Wall Street …

The loans were made to borrowers with blemished credit, or were loans with no or low down payments, no documentation, or required only interest payments. Of these, over 70% were held or guaranteed by Fannie and Freddie or some other government agency or government-regulated institution. Thus it is clear where the demand for these deficient mortgages came from. The huge government investment in subprime mortgages achieved its purpose. Home ownership in the U.S. increased to 69% from 65% (where it had been for 30 years). But it also led to the biggest housing bubble in American history.

This version of history is convincing only to those who don't understand the corrosive nature of the business cycle itself. Central bankers create booms and busts by constantly conducting monetary stimulation. The booms occur spontaneously in different parts of the economy and act as fuel for the euphorias that then turn into disasters.

Wallison himself points out that the genesis of his version of events was 1992; the business cycle actually turned twice before the sub-prime mortgage disaster was actuated. It's a simplistic analysis he offers, therefore, designed to focus attention on government rather than on the elite's financial war chest – its money printing via central banking.

The Anglosphere power elite, as we regularly mention, will do ANYTHING to deflect blame away from central banking. There is no justification for having a handful of people deciding on the price and quantity of money that the economy needs. It's price fixing, an economically illiterate activity.

Wallison surely knows this; he's an educated man and a sophisticated economic analyst. Yet he tries to turn our attention away from this fundamental flaw in Western finance by refocusing on rules and regulations.

Wallison DOES have a point, of course. Laws can aggravate and redirect bubbles. But it is central banks that provide the fuel for these serial disasters. One can, thus, actually see history being built (and rewritten) in the millions of mainstream commentaries (Wallison's included) about the current economic crisis. In the US, Democrats blame private market "greed." Republicans (like Wallison) blame "government."

After Thoughts

Both explanations resolutely ignore monetary excitation. In the pre-Internet era we would not be nearly as aware of the manipulations inherent in this dialogue. But technology has given us the ability to see clearly how the conversation is pursued and manipulated. This is yet another reason why the Internet Reformation proceeds and expands.

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