Thomas Sowell: Beward of crack-brained meddling
Is the current financial crisis going to lead to crack-brained meddling or rational actions? Predicting politicians is risky business. We can only hope the political “solution” is not worse than the problem.
There are times when government intervention can make things better. But that is no guarantee it won’t make things worse. As they say, “the devil is in the details” — and we don’t know the details.
In an optimistic view, this biggest bailout of all time may stop the problems in financial markets from spreading into the general economy, which is nothing like the disaster being portrayed.
Ninety percent of the people on this planet would exchange their economic situation for ours in a minute. The media love hype, and have been dying to use the word “recession” all year but nothing has happened that meets the definition of a recession.
The economy is growing, not declining. Our unemployment rate is up to 6 percent and our inflation rate is up a little, but there are countries that would be delighted with our numbers.
Why then is there such a mess in the financial markets? Much of it is due to the very people we are turning to for solutions — Congress.
Past Congresses created the hybrid financial institutions known as Fannie Mae and Freddie Mac, private institutions with government backing and political influence. About half of the mortgages in this country are backed by these two institutions.
For years the Wall Street Journal has been warning that Fannie Mae and Freddie Mac were taking reckless chances but liberal Democrats especially have pooh-poohed the dangers.
Back in 2002, the Wall Street Journal said: “The time for the political system to focus on Fannie and Fred isn’t when we have a housing crisis; by then it will be too late.” The hybrid public-and-private nature of these financial giants amounts to “privatizing profit and socializing risk,” since taxpayers get stuck with the tab.
Similar concerns were expressed in 2003 by N. Gregory Mankiw, then chairman of the Council of Economic A