Most Austrian economists argue that the best response to the 2008 financial crisis was to “do nothing.” By refusing to bail out the banks, investment firms and insurance companies, the government would be sending a clear message that Wall Street and the private markets must avoid irresponsible decisions in the future.
A few make an exception for the banking system itself, defending the government’s guarantee of money market funds, for example; otherwise, the whole system would have collapsed.
I just finished reading Tim Geithner’s book, “Stress Test,” which makes the case for the opposite — he justifies almost every decision by the Feds to reduce short-term rates to zero, to flood the system with money and to bail out the banks, investment firms and insurance companies, as well as General Motors. He was at the center of the crisis, before and after, as New York Fed chairman under Bush and Treasury Secretary under Obama.
I suspect the best solution was to do something in between these two extremes. To “do nothing,” the extreme Austrian position, would have resulted in a total collapse of our monetary system and probably would have caused chaos and rioting in all the major cities in the United States and most of the world. I doubt if it would have caused a return to the gold standard, but rather a discrediting of the capitalist model and a rise of totalitarian regimes.
On the other hand, the establishment view of the Keynesians, as typified by Geithner, has created the gigantic problem of “moral hazard” in the future. Wall Street knows that any big financial institution probably will be bailed out in the future, and such thinking will affect private sector decision making about risky investments.
Geithner expressed concern about “moral hazard” and supported the growth in regulating the financial centers with Sarbanes-Oxley and Dodd-Frank legislation. The result is a series of troublesome characteristics of today’s financial system: too big to fail… and too big to sail… in sum, a slow-growth economy. There is no free lunch.
You Blew It! Police Are out of Control
Bad race relations aren’t the only problem facing police in Ferguson, Missouri, and other communities around the country.
The problem is much more serious than that — it’s about the excessive force and power of a growing police state in America. The symptoms are everywhere: a record 2 million-plus Americans in prison… during the past 20 years, authorities have made more than a quarter of a billion — that’s billion — arrests. The Federal Bureau of Investigation (FBI) currently has 77.7 million individuals on file in its master criminal database. That’s nearly one out of every three American adults. (See front page story, “As Arrests Mount, Consequences Last a Lifetime,” Wall Street Journal, August 19, 2014.)
Now journalists are being arrested in Ferguson. Why? Police want to intimidate the press and keep them from reporting the truth.
And remember, an arrest record, even when you are innocent, can keep you from getting a job or getting into your favorite college. Such a record also can ruin your chances of securing a loan and housing.
And then there’s the militarization of the police across the United States. Almost every community, large or small, now has a SWAT team with military vehicles obtained from the U.S. Department of Defense. Radley Balko, author of “The Rise of the Warrior Cop,” spoke about this scary presence at this year’s FreedomFest. According to his report from Ferguson, police are arresting and attacking peaceful demonstrators there and using military armed vehicles, tear gas and full riot gear.
My own experience with the police in Florida and New York has not been good. There’s a lot of hot-headed cops out there who overreact to anything you say and threaten arrest.
This problem won’t go away. At next year’s FreedomFest, Cheryl Chumley will speak on her new book, “Police State USA: How Orwell’s Nightmare is Becoming our Reality” (WND Books).
Ferguson is just the beginning, fellow Americans. Be afraid.
In case you missed it, I encourage you to read my e-letter column from last week about the popularity of the Libertarian movement. I also invite you to comment in the space provided below.
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