The economy: Whose fault is it?

Recently, Wall Street’s largest banks have been wallowing in or near the brink of bankruptcy. Assuredly, the ramifications of these collapses will bitterly affect average Americans. Last week witnessed bankers and their agent in Washington, Henry Paulson, request a staggering $700 billion from taxpayers.

Of course, we are advised that it is all for our own good as these banks are “too big to fail.” But when, I must ask, did America’s best interests marry those of its banks? Just imagine the stimulus that $700 billion might have on the economy were it spent elsewhere.

Let’s see how our two favorite presidential candidates are responding. Both Obama and McCain have outspokenly drawn the link between Wall Street’s woes and greed. McCain seems quite certain that we must do something or the other and Obama is even more inspiring when he articulates that that something is regulation. Greed is the problem, so we must regulate and check greed to avoid future collapses.

The candidates’ perspective may be popular, but they are also naive. To hear the candidates talk you’d think they had uncovered a long concealed villain. But greed is hardly new or unannounced. Greed has been a part of the banking industry a long time and for just as long the banking industry has mollified this insidious aspect, usually successfully.

If we seek a serious explanation of our present troubles, let’s identify a plausible variable. And if we desire a variable, let’s be proper scientists and trouble ourselves to identify a factor that has actually varied since Adam’s fall. Greed hasn’t varied lately any more than human nature. To blame a particularly severe season of greed for our present troubles strikes me as blatantly idiotic.

Yet, the candidates, the media, and the federal government all cheerfully denounce the bankers’ greed as though it is some foreign devil to be cast out.

That they should seize such an absurd and practically useless explanatory variable at the outset is rather perplexing. It is even more unsettling to discover that the federal government – though it vehemently denies any foreknowledge of the present calamity – has been hopelessly entangled from the outset.

It is worth noting, for example, that it is the federal government that granted Fannie Mae and Freddie Mac with a monopoly in the mortgage market. Congress played its part with the Community Reinvestment Act requiring banks to make loans to the notorious “subprimers.”

Furthermore, the Federal Reserve’s loose monetary policy and manipulation of interest rates dissolved the chains of prudence that usually govern loans, making malinvestments suddenly attractive, or even mandatory.

It is tempting to blame the bankers. After all, scapegoats are always gratifying, especially in proportion to how easy it is for the weak-minded to identify and blame them. In their disfavor, bankers were suspiciously close to the scene and, historically, they’ve never enjoyed high esteem. (Incidentally, anti-Semitism has a long history in connection with Jews and their high representation in banking.) But are we the jury to accept such spurious proofs?

Now, I’d be the last to contend that bankers are all spotless lambs, but it bears pointing out that banks operate beneath the shadows of the Federal Reserve and the Treasury. Considering these institutions deliberately influenced the financial market, printing fiat money and forcing lower interest rates upon lenders, is it any surprise that bankers were deluded into making malinvestments?

This is the chilling reality, yet it gets worse. The federal government, which bears the lion’s share of blame for its policies and monetary manipulations, not only falsely lays the onus of guilt upon the duped bankers, it also presumes the right to regulate.

“More regulation” is the rallying cry around which we are expected to rebuild and reinvigorate the enfeebled financial market. Few follies have a greater assurance of failure. Farmers have enjoyed better success inviting the fox to guard the henhouse.

The above is, at best, a cursory examination of a weighty and complex problem. But it will have served its purpose if it inspires even a handful of curious to probe beyond the superficial explanations proffered by our leaders. In this time we cannot afford to be ignorant of the principles of sound economics.

Jeremy Hicks is a 2008 political science graduate and the founder of the Cal Poly Libertarian Club. “Don’t Tread on Me” will appear in the Mustang Daily every Wednesday as a weekly political column.