Ritholtz’s posts are becoming a broken record (”Free market ideology is the root of all evil”), but I’m enjoying more and more reading the comments section, where this simplistic read of current events is regularly dismantled by his more thoughtful readers.

Couldn’t agree more with that.
There never was a free market in the first place. And the only ideology that was practised was to be downright greedy, borrow, make money, change the rules midway through and well, pass on all the risks to someone else and do the best to delay the inevitable. Well, guess what, the inevitable is here.

The comments are just so good.

About letting Lehman fail being the only right thing that Paulson did. Just too good. Keep it coming guys, sheer education.

BR, you sure don’t wanna tweak your book a little?

Yet the Bush Administration was perfectly happy to abandon its alleged free market “principles” and slap tariffs on foreign steel (back in 2003 or something), with the 2004 election and key swing states in mind.

That said, I don’t disagree that they and many others in the financial world, politics, etc., are/were blinded by their ideology.

1. The belief that ending the Fed is “tilting at windmills,” a hopeless pursuit at best, and so therefore, we should simply learn to live with this elephant in the room by taming it as best we can with a slapdash (pardon, “pragmatic”) set of regulations and regulatory agencies to try and whack the various credit moles that will continually pop up when you have a central bank continually goosing the system with credit.

In reality, there’s absolutely nothing in history to suggest that the Fed or fiat money are permanent fixtures in the American economic landscape. Quite the opposite, in fact. The Fed’s 95-year history is an absolute catastrophe, with the Dow average measured in terms of ounces of gold having gone almost nowhere in that period (in contrast with the nineteenth century, a period of largely free, wild, laissez-faire [horrors!], wildcat banking, in which both real economic growth and the rise in stocks were more sustained and robust)

Surely, though, the Fed is the fault of free market ideology taken to excess!

2. Saving Bear Stearns, or, more generally, privatizing profits when the market heads up, and socializing losses and providing bailouts when it goes down. This idea has reigned ascendant since 1987 at least. It was the prime culprit in convincing market participants to ignore risk, because almost no large player ever failed from having taken on too much risk.

I’m not sure what this has to do with free market ideology, but maybe Barry explains it in his new book “Bailout Nation.”

3. The belief that centralized regulatory bodies will remain immune to bullish, pro-speculative forces dominating the rest of society.

Essentially, to believe that government regulatory bodies instituted in the aftermath of spectacular market crashes like 1929 and 2008 will work, you have to believe that they will retain a cautious, wary mindset even as the broader atmosphere eventually becomes one of incautious risk-taking, as the old post-crash hangover finally disappears completely. In other words, you have to believe regulators will (1) successfully stand apart from the permabull mood sweeping the rest of society (2) accurately perceive that such a dangerous mood has developed, and (3) most incredibly, will succeed in breaking the developing speculative fervor.

There’s no reason to believe regulators are capable of achieving any of these three things. Furthermore, if they *try* to achieve them, they’ll lose their jobs. Imagine if, in 2001, the head of OFHEO had demanded that Fannie & Freddie delever their balance sheets and rein in mortgage lending. He would have been shitcanned in a heartbeat. In a democracy, people will vote in whatever policies they desire. If they want to break down regulatory obstacles to levering up the balance sheet, they’ll do it. The only ways to stop it from happening are to write banking regulations into the Constitution (and hope the Supreme Court bothers to actually uphold these Amendments), or to ban expressions of anti-regulatory sentiment completely.

4. Crass pragmatism and anti-ideological fervor, as expressed in the “do something!” panicked mentality that produced the TARP, and Bush’s shocking honest statement that he had “abandoned free market principles to save the free market.” The idea that one can just try something and see if it works, with a hugely complex system like the modern economy, is preposterous. It’s why you need a consistent appeal to principles, such as, “freely-operating economies tend to self-organize better than those overseen by supposedly powerful directors,” to understand what the impact of various policy decisions will be.

5. Believing that regulators have the investing public’s best interests at heart and will faithfully protect those interests. This was apparently *never* the case under either Democratic and Republican administrations. Most of the “re-regulate now!” crowd has not proposed any solutions at all to the problems of “cognitive regulatory capture.”

6. Belief in “something for nothing.” In a way, this is the philosophical conceit that spawned all the mistakes mentioned above. It’s what makes people think you can have money without stored value like gold, that you can have financial markets without occasional panics and crashes to weed out the weakest players, that you can have a banking system where a regulator (FDIC) supposedly makes sure that your bank is safe for you, and you have no chance of losing your deposit, and on and on and on.

Also, the ultimate free market ideology leads to laziness in the regulators, doesn’t it? They don’t have to do anything.

I actually think the military issues have been handled not too badly, but the political economy is a disaster. The other thing that’s so ridiculous is that it’s an “administration”/group of people. Bush wasn’t the only guy in the room… much like Hoover. He was the most respected business/economic mind of the time, and now he is derided. The free marketers (like me) should take a hard look at that.

I voted for Bush both times, and still think his opponents would have been worse. That’s all that matters in the voting booth in real time…..20/20 hindsight- well, who knows….

Gak, I think you might have Greenspan backwards.

NYT had a piece titled “Greenspan Shrugged’; When Greed Was a Virtue And Regulation the Enemy.”

“Mr. Greenspan’s embrace of greater regulation is a remarkable turnaround for an economist who for many years was a close friend and colleague of Ayn Rand, the high priestess of unfettered capitalism, who fulminated against the ideas Mr. Greenspan now espouses.”

” It comes down to people in power who took Ayn Rand’s horrible piece of fiction and held it up as their economic bible. Remarkably similar to how that other talentless writer L. Ron Hubbard created a religion.”

Wrong. Allen Greenspan who wrote about gold and a sound currency in the 60’s is not the same Allen Greenspan who became a statist as a Central Banker in the 80,90, 00’s. Think Darth Vader/Annakin Skywalker and you get the right idea.

Gak

In fact, it’s a disagreement between ideologies, and that’s a much better way to frame it than to simply dismiss anyone who claims to have a principle you disagree with as a religious zealot.

I actually agree with most of Barry’s conclusions… just not the idea that this is only or even mainly caused by the free-market. It’s caused by the unholy union of the free-market and rampant interventionism. I would be very hard for something of this scale to happen without government control of the money supply, interest rates, and GSEs.

And the lesson I see is, if you’re going to have the government meddling, you damn well better regulate it heavily. I’d, of course, prefer to get rid of the meddling, rather than removing the capitalism. Sorry I’m such a “zealot.”