Yaron Brook makes a case that capitalism was not to blame for the 2008 economic crash.
Here is the video and my response:
Here's the arguments (and my comments as I listen)
"we didn't actually have capitalism." We also don't have pure bred religion, but that doesn't mean we can't talk about how religion plays a role in our society.
"there are regulations in the market" yes, but that doesn't excuse decisions of Wall Street banks, ratings agencies and insurance companies.
"there are a ton of regulations in the banking industry" yes, it is a difficult industry, but that still doesn't excuse priavte market actions - and might be a reason to add regualtions in some areas.
wow. these arguments in the video are getting weaker, not stronger.
OK, his Federal Reserve argument is good and bad. I agree it needs to be as transparent as possible. Currency is a base of our economic system and it is not in a stable situation. Numerous currencies around the world. Speculative bubbles and panics destorying currency. We need a functioning form of currency if we want capitalsim to work. I'm in favor of a global currency (we are in a global economy after all) and maybe that would make the situation more stable and straight forward... but problmes to figure out too.
Didn't Greenspan change his mind and decide that no regulation led to currency instability that would crash the system for technical or speculative reasons and not due to actual important reasons like economic performance? The current goal of the Federal Reserve is to keep inflation right around 2%. They raise or lower the interest rates to stay near that target inflation level.
There also is the problem of vast investment money trying to find a home. The trade imbalance leads China to have a lot of cash. Oil rich kingdoms have tons of cash looking for productivity. Huge pension and investment funds seek out the best returns. The problem is there are limited areas to invest this money. This means that sometimes the overflow money just gets dumped into treasury bonds or a housing boom that is delivering incredible short term profits, or a tech boom, or a speculative oil bubble or in soverign countries like Greece and Ireland who had the perceived backing of the Eurozone economy. When there is so much investment cash looking for a home, it greatly influences how the market acts and responds. Countries, companies and people spend more money because money is really cheap. That is not just because of the Federal Reserve, but because of market forces.
After and during the crash, money got really expensive. A ton of money was loaned out to "productive investments" that were AAA rated by ratings agencies. The short term profits and long-term outlook seemed safe. The problem of course is that Greece, Ireland, etc... were not good investments even though they had the backing of the Eurozone. Huge packages of AAA rated mortgages were not worth the money being invested in them. The tech boom of the late '90 was too much, too quick.
When the recent housing bubble burst, the Wall Street banks lost so much money that they were no longer able to loan any money. Businesses and indivduals couldn't get loans to buy inventory or products. The economy ground to a halt. Bush and Paulson decided to rush emergency money to the banks and liquidity started to return to the market. That was the last of the downward trend in GDP losses and jobs per month losses.
That story is primarily about market forces until the rescue at the end. There were a small percentage of loans in the Community Reinvestment Act, but most of them had 30 year fixed rates. To take this one program and apply it ot the rest of the market isn't factual. Most of the market was private banks pushing as many loans as they could (with ARM getting higher commissions) because they could sell it the next day to a huge Wall Street bank that would put it into a package that could get a AAA stamp and then be sold off to oil barrons, pension funds and hedge funds. This means the local mortgage broker didn't have much of an interest if the loan could be paid back. He just needed a signed piece fo paper that could jump through the limited goops required to generate a commission. I personally was involved with an online affiliate program where I could get commissions if someone on my website clicked and ad and then signed a mortgage. The investments were based on the potential of the home owner to pay back rising monthly payments. That is a bad market system and a terible investment that was sold to people with a AAA rating on it.
Freddie and Fannie backed loans but that doesn't mean they were running 70% of the market. My home loan was backed by them, but I shopped for a mortgage in the private market and Jess did a great jobs of haggling the mortgage broker and banks. They offered us way more money than we should have been spending. They tried to change the terms of our mortgage on the day of signing and my wife and I said we would walk away from the deal if they did. We sought out a fixed rate loan, but could see how many people would take the lower monthly payments of the adjustable rate mortgages.
The video tries to prove that government involvement was there (yes) and it played a role in the cirsis (not the major role, but I'll play along for now) and so that means capitalism is not at fault (wait a second). He then goes on at the end to quickly go through the Wall Street crooks, bad decisions, etc... (oh, there were capitalist faults) and then turns back to also blaming that major part of the story on the government. Again, a pretty weak argument.