Obama Evades Government’s Role in the Crisis

Obama Evades Government’s Role in the Crisis

Washington, D.C., April 10, 2009–In an op-ed published this week by Canada’s Financial Post, Alex Epstein, analyst at the Ayn Rand Center for Individual Rights, argued that “In calling for a massive increase in government control over the economy,” Obama “has evaded the mountain of evidence implicating the government.”
 
The primary cause of the current crisis, explained Mr. Epstein, was “drastic attempts by the government to control the housing and financial markets–via a Federal Reserve that cut interest rates to all-time lows, and via a gigantic increase in Fannie Mae and Freddie Mac’s size and influence.” Through these entities, Epstein pointed out, “the government sought to ‘stimulate the economy’ and promote homeownership by artificially extending cheap credit to home-buyers.”
 
But, Mr. Epstein noted, Obama did not mention the Fed, Fannie, or Freddie even once, during his recent 52-minute speech to Congress. “Not once did he suggest that government manipulation of markets could have any possible role in the present crisis. He just went full steam ahead and called for more spending, more intervention, and more government housing programs as the solution.”
 
But the “fundamental solution to our problems,” said Epstein, is “to disentangle the government from the markets to prevent future manipulation.” To achieve that, Epstein concluded, we need to consider “pro-free-market remedies such as letting banks foreclose, letting prices reach market levels, letting bad banks fail, dismantling Fannie and Freddie, ending bailout promises, and getting rid of the Fed’s power to manipulate interest rates.”

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Misrepresenting "How We Arrived at This Moment"

By Alex Epstein

What must be done to recover from this financial crisis? Barack Obama rightly stresses that we first must understand how today’s problems emerged. It is “only by understanding how we arrived at this moment that we’ll be able to lift ourselves out of this predicament.”

Unfortunately, Obama (along with most of the Washington establishment) has created only misunderstanding. In calling for a massive increase in government control over the economy, he has evaded the mountain of evidence implicating the government.

For example, Obama’s core explanation of all the destructive behavior leading up to today’s crisis is that the market was too free. But the market that led to today’s crisis was systematically manipulated by government. Fact: this decade saw drastic attempts by the government to control the housing and financial markets–via a Federal Reserve that cut interest rates to all-time lows, and via a gigantic increase in Fannie Mae and Freddie Mac’s size and influence. Fact: through these entities, the government sought to “stimulate the economy” and promote homeownership (sound familiar?) by artificially extending cheap credit to home-buyers. Fact: most of the (very few) economists who actually predicted the financial crisis blame Fed policy or housing policy for inflating a bubble that was bound to collapse.
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Are We All Socialists Now?

Washington, D.C. –The Treasury Department, as part of its ongoing assumption of control over the financial industry, is preparing to inject cash into U.S. banks in exchange for preferred shares of bank stock.

“Are we all socialists now?” said Yaron Brook, executive director of the Ayn Rand Center for Individual Rights. “Have we learned nothing from the devastation that socialist policies wrought worldwide in the twentieth century? Government intervention distorts markets and causes economic dislocations, no matter whether Uncle Sam controls private companies by regulation or assumes public ownership outright.

“A crisis doesn’t transform poison into medicine. Over decades, government manipulation of money, credit, and mortgages poisoned this economy and left it dangerously weak. Now Hank Paulson and his comrades are hooking up IV tubes filled with more of the same poison–bailouts, loan guarantees, cheap money, and more burdensome regulations–and hoping we will lie still and trust in their cure.

“But the real cure is capitalism, not more doses of socialism. We should act quickly to put government in its place, by rolling back the interventionist measures that caused the present emergency. Government’s proper role is to punish fraud and enforce contracts, not to own and manage the economy. We cannot achieve financial health unless we are willing to free the markets.”

Yaron Brook is executive director of the Ayn Rand Center for Individual Rights. He is a regular contributor to Forbes.com and a contributing editor of The Objective Standard. His articles have been featured in major newspapers such as USA Today, the Houston Chronicle, the Chicago Sun-Times, the Providence Journal and the Orange County Register. Dr. Brook is often interviewed on radio and is a frequent guest on a variety of national TV shows, having appeared in the new Fox Business Network, FOX News Channel, CNN, CNBC, and C-SPAN. Dr. Brook, a former finance professor, lectures on Objectivism, capitalism, business and foreign policy at college campuses, community groups and corporations across America and throughout the world.

How Not to Defend Free Markets

Washington, D.C. – In response to the financial crisis, traditional defenders of free markets have criticized certain controls passed by U.S. regulatory agencies, but are not calling into question the legitimacy of the agencies themselves. But, argued Yaron Brook, executive director of the Ayn Rand Center for Individual Rights, “It is insufficient and indeed counterproductive to criticize a few failed policies of the Fed and the SEC, without challenging the existence of these market-dictating agencies in the first place.
 
“As Exhibit A, consider the response to the SEC’s recent war on short selling. The Wall Street Journal, regarded as a strong defender of free markets, wrote that ‘[T]he SEC first clamped down on so-called naked shorting–a reasonable move under any circumstances, even if there’s no evidence of widespread naked shorting of financial stocks in this panic. But Mr. Cox didn’t stop there. The SEC has also temporarily banned any short selling of hundreds of financial stocks, a list that has grown to include the likes of General Motors. Then, when the SEC was reminded that selling a stock short is a legitimate part of many unimpeachable hedging strategies, it relaxed the prohibition for certain types of sales while continuing to expand the list of “protected” stocks. . . . If the SEC wants to help restore calm, it would stop issuing new emergency rules in the dead of night and bring some transparency and calm to its own rule-making.’
 
“In praising some of the SEC’s actions, while criticizing others, the Wall Street Journal is conceding a disastrous principle: that financial markets should be controlled by government at all.
 
“Under capitalism, the proper role of the government in financial markets is to protect individual rights by banning force and rooting out fraud. This requires objective laws that do not permit would-be central planners to tinker with markets when they don’t like the results. But the SEC’s regulatory authority allows it to coercively prevent individuals from engaging in voluntary transactions like short selling whenever it decides those transactions do not serve the ‘public interest.’
 
“Since the ‘public interest’ is an indefinable standard compatible with any interpretation or rationalization, this means in practice that SEC goons can arbitrarily unleash their regulatory club on financial markets whenever they feel it’s warranted. For example, see Chris Cox’s blitzkrieg of contradictory emergency orders attacking short sellers.
 
“The basic principle behind regulation is that the government can use force, not to protect individual rights, but in an attempt to engineer ‘socially desirable’ outcomes, i.e., outcomes different from what would result from the voluntary choices of individuals on a free market. That is the same premise that underlies all disastrous attempts at central planning–from the Soviet Union to modern-day Venezuela.
 
“If the Wall Street Journal really wants to defend capitalism, this is the premise it must oppose. Instead of prodding government regulators to be better central planners, it should call for a complete end to government control of financial markets. This is the lesson all defenders of capitalism must learn: you cannot defend capitalism by conceding the legitimacy of its opposite.”

Yaron Brook is executive director of the Ayn Rand Center for Individual Rights. He is a regular contributor to Forbes.com and a contributing editor of The Objective Standard. His articles have been featured in major newspapers such as USA Today, the Houston Chronicle, the Chicago Sun-Times, the Providence Journal and the Orange County Register. Dr. Brook is often interviewed on radio and is a frequent guest on a variety of national TV shows, having appeared in the new Fox Business Network, FOX News Channel (The O’Reilly Factor, Your World with Neil Cavuto, At Large with Geraldo Rivera), CNN (Talkback Live and the Glenn Beck Program), CNBC (Closing Bell and On the Money), and C-SPAN. Dr. Brook, a former finance professor, lectures on Objectivism, capitalism, business and foreign policy at college campuses, community groups and corporations across America and throughout the world.