Tuesday, April 7, 2009

1819: America's First Housing Bubble

C.J. Maloney writes here about history repeating itself in two fascinating yet disturbing ways. First, the banking system caused a housing bubble in 1819 based on bogus, credit-financed money. Second, with BHO's policies already underway (really just a continuation and expansion of Bush's policies), we are repeating the mistaken response to the Great Depression provided by FDR and the politicians of that era.

Maloney explains how the panic of 1819 quickly righted itself because the people of that era understood that government had caused the problem, and that yet more government intervention into voluntary exchange was definitely not the solution.

Today, we've lost sight of the abundant lessons history provides, and lots of folks are clamoring to be saved by government from the problems that government caused in the first place.

More credit is not the answer. More federal spending financed by the Fed buying up non-performing assets with newly created money, while other investors buy Treasury bonds instead, is not the answer. Insisting that investors and banks who made bad loans lose their wealth is the answer.

The economy, left to voluntary exchange, is amazingly robust. Individuals know what to do and how to do it when they are left to pursue their own best interests. Expecting politicians and financial market regulators---who together caused the problem---to solve the problem is simply a stupefying idea.


Ethan Lavallee said...

i agree completely. however, the bank is the major part of your idea of Voluntary Exchange right? If no one trusts the banks, who should the individual rely on? Getting loans from Joe the Plumber?

DLK said...

We have plenty of sound banks. We won't lack for sound banks if we get the politics out of banking.

Fiddlinmike said...

The government does need to protect the banking system (to prevent panic by savers) but otherwise they need to let sorry banks fail.

I agree with DLK. There are plenty of sound banks - most are locally and regionally located. From that field, strong banks should emerge to national prominance.

The largest financial institutions operate in a culture of excess. They don't add nearly the "value" they take in compensation from customers, and ultimately that practice leads to market failure - unless the government screws it all up by attempting to manage everything in an environment where there are no defined rules or natural conseqences.