One year after Lehman's collapse


Is it true that in hindsight everything appears in 20/20 vision, or is the government so confident in its own conclusions that is refuses to take a better look? Marking now a year after the fall of Lehman Brothers, and the beginning of the current economic recession, it seems that all we hear from political leaders is that the entire economic recession was caused by too little oversight and regulation by government. But are governments trying so hard to be seen doing something about it that we are headed towards massive amounts of over-regulation, and perhaps planting the seeds for further economic crises?

Government intervention was in large scale the cause of the current economic crisis. In America, for example, the government organized programs aimed at what it called “fair housing" to give all Americans the chance to own a home regardless of past economic or credit status. Fannie Mae and Freddie Mac were essentially the long arm of the government to carry-out these programs and were given a direct line of credit into the US Treasury. The problem is that governments are not willing to leave anyone out, or have any losers, since their primary interest is in pleasing the masses and not turning a profit. The private sector may leave some people out, but it also doesn’t throw massive amounts of money to people that will never be able to repay either - that is unless the government throws equally large amounts of money at them first without expecting repayment. Governments simply do not internalize costs or risks, and government money carries those same tendencies with it. There was just too much of it floating around in investment firms pocketbooks.

Now governments all over the world are once again trying only to please the masses without internalizing any of the costs. They are cracking down on CEO pay and bonuses, limiting investments, and in some cases taking ownership stakes in high risk areas. The government just can’t keep its hand out of the market. The current conditions are due in large part to government covertly trying to buy the free market out, and now they are openly trying to suffocate the market which can only lead to similar or worse outcomes.