Is “deregulation” to blame for our financial crisis?

27 Jun

According to conventional wisdom, our current economic woes have been caused by the “excesses of capitalism” and “deregulation.” These talking points are repeated on the major news networks, the op-ed pages on mainstream newspapers and magazines, and even by our current Administration.

Thomas DiLorenzo over at highlights these false rhetorical claims:

“Stockbroker Henry Kaufman of Henry Kaufman and Company recently wrote in the Financial Times that ‘free-market libertarian dogma led us astray.’ This absurd claim is being repeated by other Wall Street establishment mouthpieces, even including the disgraced former governor of New York, Eliot Spitzer. Spitzer recently went on MSNBC to argue that the Fed is a ‘libertarian’ institution. All of these commentators conclude that what is needed, therefore, is even more central planning and regulation by the central bank…”

It was not the failure of capitalism and the absence of proper oversight and regulation that got us into this mess. The proper blame belongs in the lap of perhaps the U.S.’s worst institution, the Federal Reserve. This central bank is neither “federal” nor possesses any “reserves,” and ever since its inception in 1913, has distorted and manipulated the American economy.

A publication entitled “The Federal Reserve: Purposes and Functions” examines the true role the Federal Reserve has over our economy. The Federal Reserve makes it easier to lend and borrow money by printing money out of thin air, which  lowers interest rates far lower than a free-market based system would allow them to be. This encourages reckless spending, malinvestment, sub-prime mortgages, and inflates (devalues) our money supply. When this Federal Reserve induced drunken spending orgy inevitably crashes, it demands more and more power to “fix” and “stabilize” it; the inmates running the asylum, if you will. You can’t have a free-market economy with a central bank pulling the levers, but capitalism makes an easy scapegoat for power-hungry politicians and nutty economists.

The Federal Reserve also has incredibly vast regulatory power over nearly every aspect of the economy. Here is a list of all the things the Federal Reserve regulates (and all of these regulations were in place during our current economic crisis):

  • Bank holding companies
  • State-chartered banks
  • Foreign branches of member banks
  • Edge and agreement corporations
  • U.S. state-licensed branches, agencies, and representative offices of foreign banks
  • Nonbanking activities of foreign banks
  • National banks
  • Savings banks
  • Nonbank subsidiaries of bank holding companies
  • Thrift holding companies
  • Financial reporting procedures
  • Accounting policies of banks
  • Business “continuity” in case of economic emergencies
  • Consumer protection laws
  • Securities dealings of banks
  • Information technology used by banks
  • Foreign investment by banks
  • Foreign lending by banks
  • Branch banking
  • Bank mergers and acquisitions
  • Who may own a bank
  • Capital “adequacy standards”
  • Extensions of credit for the purchase of securities
  • Equal opportunity lending
  • Mortgage disclosure information
  • Reserve requirements
  • Electronic funds transfers
  • Interbank liabilities
  • Community Reinvestment Act sub-prime lending demands
  • All international banking operations
  • Consumer leasing
  • Privacy of consumer financial information
  • Payments on demand deposits
  • “Fair Credit” reporting
  • Transactions between member banks and their affiliates
  • Truth in lending
  • Truth in savings

So is “deregulation” to blame? It would be hard to find something the Federal Reserve didn’t regulate. Its arrogant chairmen have also refused every attempt by Congress to audit or monitor its counterfeiting.

What the U.S. needs is not more “regulation,” but an economy based on sound money, free markets, and massive cuts in government spending. What the Federal Reserve system has given us is a boom-and-bust cycles for 90 years, the redistribution of wealth bailouts for banks and car companies, and a 95% decrease in the value of our money since 1913.

The Framers knew that a central bank leads to impoverishment, corruption, and loss of liberty, and every bailout, stimulus, and government expansion into economic affairs digs us deeper and deeper into the grave of tyranny.


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