Bush's 'confusion' about the financial crisis

Most likely, President George W. Bush was prevaricating, not confused, when he stated, looking straight at the audience listening to his speech about the financial disaster, “The market is not functioning properly.” That’s because he — or his advisers — must know that the American economy is not a genuine market at all but a politically manipulated arena of criminal interference with people’s economic decisions.

Take the plain and easily demonstrated fact that during Bill Clinton’s years in the White House the two government-supported lending corporations, Fannie Mae and Freddie Mac, were forced by his administration to lend money to people at unbelievably low rates. This was done so as to encourage home ownership among low-income citizens, ones who ordinarily could not afford home loans. But government interfered and made it easy for such people to obtain money without adequate collateral, without solid jobs, without a ghost of a chance of actually paying back their loans.

Of course this is just one of the reasons for the current crisis. But what is clear beyond any reasonable doubt is that no such system as a market was functioning at all. Markets are destroyed as markets when the government interferes in such a fashion, taking out the normal instrument of risk which leads people to tend to act rationally, prudently.

So is President Bush so economically ignorant as to fail to understand even this much about the recent history of the housing market? Does he not know that when you provide people with artificially low mortgage interest rates and with ridiculously easy terms, they will then most likely cut deals they should never even go near? If you force a merchant to part with his or her product or service at prices that are way below what the free market would command that merchant is going to go broke and the customers are going to be utterly misled about the requirements for doing sound business.

The American economy has for decades been subjected to such irrational public policies that seriously distort the market process, and many economists predicted that exactly that would happen nearly a decade ago. These economists, who do understand the nature of a properly functioning market, aren’t shocked with the current state of affairs. But when they aired their warnings in all kinds of forums, they weren’t listened to because it was deemed politically incorrect to oppose easy housing and other loans to people who had no business getting them. Yes, they were too poor to handle those loans, and when government nonetheless forced financial institutions to make them, they were paving the way toward today’s financial collapses.

Why President Bush would join all those dishonest “economists” who advocated the government’s easy-money policies with the claim that it was “the market” that is “not functioning properly” is a mystery to me, especially after he announced, in that same speech, that he favors the free market and is reluctant to interfere with it. But then Bush clearly appears to have only pretended to be a friend of freedom, what with his enormous budget deficits which coerce members of future generations into near bankruptcy even before they are born.

Thomas Friedman, The New York Times columnist who recently wrote “The World Is Flat: A Brief History of the Twenty-First Century,” about globalization, said a few days ago that until the very end of one’s journey falling from a skyscraper one will feel like one is able to fly. So over the past few decades, as housing prices kept climbing and every Tom, Dick and Harry has become a home owner, never mind the ability to afford a home, millions of people were like the bloke who was deluded that he could fly until he met his demise by crashing to the ground.

But instead of learning from this, Congress and those cheering it on are committed to fooling us into thinking that one can really get away forever with financial imprudence.

ABOUT THE WRITER
Tibor Machan holds the R.C. Hoiles Chair in Business Ethics & Free Enterprise at Chapman University’s Argyros School of B&E and is a research fellow at the Pacific Research Institute and Hoover Institution (Stanford). He advises Freedom Communications, parent company of this newspaper. His most recent book is “Libertarianism Defended,” (Ashgate, 2006). E-mail him at TMachan@link.freedom.com.