An excellent summary of the current financial mess and its causes can be found in Friday’s article by Sheldon Richman of the Foundation of Economic Education. In it, he counters the near-unanimous mantra that the meltdown has been caused by "greed" and a "a lack of regulation."
The "unregulated greed" narrative has been swallowed whole by both presidential candidates. According to McCain: “These actions [leading to the crisis] stem from failed regulation, reckless management, and a casino culture on Wall Street….We need strong and effective regulation…"
Likewise, Obama sang a similar tune Sunday in Charlotte, saying the situation is a result of an "era of greed and irresponsibility on Wall Street and in Washington," adding, "They said they wanted to let the market run free, but instead they let it run wild."
Richman counters this intellectually lazy, populist appeal to economic illiterates with impressive clarity. Have markets been allowed to "run wild" in a new wave of unbridled laissez-faire in Washington? Hardly:
"At the Division of Labour blog, economist Lawrence H. White asks: “What deregulation have we had in the last decade? Please tell me. On the contrary, we’ve had a strengthening of the Community Reinvestment Act, which has encouraged banks to make mortgage loans to borrowers who previously would have been rejected as non-creditworthy. And we’ve had the imposition of Basel II capital requirements, which have encouraged banks to game the accounting system through quasi-off-balance-sheet vehicles, unhelpfully reducing balance sheet transparency.”
And on the left’s permanent template – greed – used every time they want to gloss over the failings of government intrusion into the marketplace, Richman writes:
"What about greed? Here White also has something important to say: “If an unusually large number of airplanes crash during a given week, do you blame gravity? No. Greed, like gravity, is a constant. It can’t explain why the number of crashes is higher than usual.” Likewise, greed (however you define this essentially useless concept) can’t explain the current economic troubles. Why didn’t these troubles occur earlier? Were people less greedy then?"