Posted by AzBlueMeanie:
Catchy title. The latest book by Paul Krugman? No. You may want to sit down first.
The title is to the latest book by one of the conservative movement's high priests, Judge Richard A. Posner, who until now has been a devotee of Ayn Rand and Milton Friedman. The Earth just trembled.
In a brief interview at US News and World Report, Posner chatted with U.S. News about the financial crisis, the government's role in fighting it, and the mistakes he and others like him made in espousing the deregulation of the banking industry. Excerpts:
What will surprise readers about your book?
That I'm writing about the banking industry; I haven't done that in the past. But also I do say that we went too far in deregulating the banking industry. I've always been a strong supporter of deregulation, and I should have said deregulation in everything but banking.
Why is banking regulation different?
All business and all consumers are involved to some degree in borrowing and lending. So if that process of borrowing and lending gets disrupted because the risks of banking materialize in a crash, then the whole economy can be very seriously damaged.
* * *
Who's to blame for the economic crisis?
Primarily the deregulation movement—people like me who didn't carve out banking from the other industries to be deregulated. But also the Federal Reserve under [Alan] Greenspan and [Ben] Bernanke for having pushed down interest rates so far that it caused a housing bubble. The problem is that houses are the principal assets that are bought with debt—with a mortgage. So the lower the interest rates are, the cheaper it is to buy a house. And a surge in demand leads to housing starts but not enough housing starts to satisfy the entire demand for houses. So house prices rise. You have asset price inflation. And when that bubble bursts, it not only brings down the housing industry but it brings down the banking industry because the banks are almost partners in real estate because so much of the purchase price of a house is in the form of a debt, a loan from a bank.
* * *
Where do the ideas you put forward in this book fall on the ideological spectrum?
I think they're actually quite centrist. On the extreme right are really people who don't want to do anything and let the depression unwind of its own force. And they're very fearful of inflation and of the government getting too deeply involved in the banking industry. I'm sympathetic to those concerns. I just think the situation is too serious to take a laissez-faire view. And on the left, there are the people who want to take over the banking industry. And I think that's a very serious mistake. And then you end up with the government saying who gets a loan.
NB: Richard Posner's loss of faith in free market religion follows on the heels of Ayn Rand and Milton Friedman acolyte Alan Greenspan's loss of faith in free market religion last October. Greenspan Concedes Error on Regulation “Do you feel that your ideology pushed you to make decisions that you wish you had not made?” Mr. Greenspan conceded: “Yes, I’ve found a flaw. I don’t know how significant or permanent it is. But I’ve been very distressed by that fact.”