The fact that people have committed financial fraud doesn't mean that the free market doesn't work, any more than the fact that people committing non-financial crimes means that free societies don't work. When financial fraud was committed in a communist society - as Mao Zedong did when he had people who reported bad numbers to him during the Great Leap Forward executed - tens of millions starved to death, even as Mao is venerated as a major deity today. When fraud is committed in a free market society, investigators swing into action and prepare evidence to prosecute the perpetrators. It's no different from what happens in the arena of non-financial crimes. There simply aren't enough financial unit investigators to carry out permanent audits to prevent all financial crimes, any more than there are enough cops walking the beat to prevent all non-financial crimes.

 

The financial bubble of the previous years mean that millions of jobs were unnecessarily created (and lost when the bubble burst). But only a fraction of these transactions were fraudulent. The real reason for the massive contraction in real estate prices is enthusiasm piled upon enthusiasm. This, and not lack of regulation, is why Japanese real estate is today at 10% of its peak valuations attained 20 years ago. 

 

Law enforcement is a basic function of government. Providing free health care for people who aren't willing to pay for it isn't. Providing able-bodied people who are unwilling to work with free food, free cell phone service, free money and free housing isn't.

Doggtag,

 

I feel the major mistake in your analysis is your belief that the mortgage market in the US is a free market.  That couldn't be further from the truth.  The market is thoroughly distorted by government regulation and even direct government involvement as is the case with Freddie and Fannie.  Add to that is the fact that mortgage rates are not set by the market but instead by a central planning office led by commissar Bernanke.

 

Wherever you have government distortion in markets that otherwise work freely you'll witness fraud and corruption on an epic scale.  The mortgage market in the US is no exception.

The idea I was shooting for was,
in numerous other discussions,

it was, as you've said, argued that too much gov't involvement led to the mortgage crisis, and 'twas suggested that none-to-minimal gov't oversight should be the limit, with the preconception that competing lenders working against each other would keep pricing fair and, hopefully, honest.

 

But we are talking about the US of the A here, so what's to say good ol' greed won't takje route and take such a system down of its own accord, anyway?

We've already seen the little guy firms consolidate (or be bought out by bigger ones) to survive, or they go extinct.

What's to prevent private industry from following down the path we've seen these others (financial, auto, etc) do it by their own actions (poor leadership?) with no help of the government to do it?

 

I'm just throwing the question out there: can we as Americans really trust that the theoretical goodness in all our hearts will always win out over greedy CEOs' lust for more money and power?

Can we seriously expect that less overall government involvement in the systems will make them run smoother?

 

Who here remembers the history lessons about robber barons and the government needing to step in with anti trust laws just to, at least as we were told, keep the spirit of competition alive and viable?

 

Just how much free corporate reign can we allow to run rampant thru our economy, without some measure of control, and more importantly, laws and legalities (yes, government intervention) to deter the very same criminal behaviors we've already seen committed even with government involvement?

How much can we really trust people of power, money, and influence to police themselves, when more than enough of them obviously cannot even currently do it with the threat of the government possibly looking down the necks thru all the current and past regulation?

 

Can we really trust a truly "free" (no government involvement) market to correct itself when things get out of control?

 

 

 

"Free market" does not mean free from government involvement. That is the common myth that socialists and communists spread to denigrate the system that work just fine. On the contrary, just like how early liberals view government's role in a meritocratic society, i.e. necessary evil, free market proponents should view government's role to be watch dog and judges, whose primary function is to ensure lawful practice of contract under common laws.

 

If the government is doing the right thing, then those frauds should have been caught earlier and thrown to jail.

 

What free marketeers object is that the government, through legislation and administrative control in the name of policy, exert its influence by means of laws and regulation which backed by police force and military, so that the market reality is unjustly distorted to favor certain group of people.

 

Even under the worst scenario that you posted originally, those frauds only cheated banks for several dozen millions total. How much is government and bankers defraud taxpayers so far? In trillions.

In a free market the greedy CEO doesn't matter.  In a free market, if one compay is making enormous profits then sooner rather than later competitors will enter the market and drive down prices.  In a free market, companies are the servants of their masters, the customer.  In our current financial markets, the government taxes us, assumes debt in our name and gives the money to badly run companies managed by greedy CEOs.  Long term successful companies tend to have CEOs who do not draw absurdly high salaries.

 

 Before your government got involved in mortgage markets, homes were affordable, people put down a 40% deposit and default rates were close to zero.  With government involvement in mortgage markets, we have irresponsible lending, cheap money, ordinary Americans speculating on their homes, people borrowing against the value of their home (also driven by speculation) housing being less affordable for the avearage family and high rates of default.

What libertarians fail to realize is that the market regularly concentrates a large amount of money in the hands of a few people.

That money directly translates into power and so you get a large amount of power concentrated in the hands of a few people.

Where there is a large concentration of power in the hands of a few people there will be the abuse of that power.

That's why you need the govt. as a balance against people abusing the power they gained through the market and you need the people/market to act as a balance against the govt..

 

Sometimes certain people really must be told: "No! you cannot do that!" by the govt. and sometimes the govt. really must be told: "No! you cannot do that!" by the people.

 

Of course this is all supreme heresy to the libertarian religion. These guys never wanna be told "No you cannot do that" even if it does involve something that is a liability for the entire region.

 

 

 

 

You can't. Right now there are people dumping Billions into the idea of being in the market, but against it. Save yourself.