For the last several months the American and world economies have been hit hard.  Stock markets around the world have lost considerable value, and as a result many people and companies have been wiped out financially.  Blame is being thrown in every direction as to what caused the problems.  I’ve been reading in the media and blogs alike that saw the Free Market is to blame and it is time to let Capitalism die out.

It is not a stretch to say that the current economic situation can be tied to the bursting of the real estate bubble.  Democrats and Republicans are pointing their fingers at one another, while accepting no blame themselves.  The truth is both sides of the political aisle are to blame.  The roots of the problem go back quite aways.

Some History:

-In the 1930’s, as a result of the 1929 stock market crash, several federal programs were established to guarantee mortgages, both the lender and borrower, and provide subsidized housing.  Created at this time was the Federal Housing Administration (FHA), the United States Housing Authority (precursor to HUD), and the Federal National Mortgage Association (Fannie May).

-In the 1940’s following WWII, more federal programs were adopted or enhanced to help war veterans find housing.

-In the 1950’s, urban redevelopment programs were adopted at the federal level to clean up slums and blight.

-In the 1960’s, the Housing and Urban Development (HUD) agency came into existence.  It took over the role of earlier agency, while at the same time was given a broader direction.  A few of HUD’s purposes now included assisting minorities and moderate income households in achiving home ownership and greater range in subsidized housing programs.

-In the 1970’s, the Community Reinvestment Act was established to require banks to lend to low income households.

-In the 1990’s, federal programs were put into place giving grants to those who otherwise could not afford home ownership.

-In the early 2000’s, regulations were further relaxed by FHA and Fannie May so everyone could prusue the “American Dream” of home ownership.

Other things also affected the real estate market during these times too, such as intrest rate manupulation by the FED and other easing of banking standards.  As you can see there was much fidling in the real estate market by both Democrats and Republican administrations.  Congress is also to blame.  Most of the acts listed above had to go through both cambers before the Presidents could sign them into law.

Is the Free Market and Capitalism to blame?  A generalized definition of both Free Market (economic system) and Capitalism (social system) is a system in which there is no unneccesary government intervention.  This, then leads to the question what is unneccesary intervention?  It is easier to answer in reverse, in other words when is intervention neccesary in either system?

1) To prevent force

2) To prevent fraud

3) To prevent monopolies

4) To uphold agreed upon moral standards

That’s it!  Those are the four principles that were designed to guide both our social and economic systems.  With few exceptions from the earlier list of regualtions, each was an unneccesary intervention.  In actuallity, as I see it, every federal act led to the breaking of each of the four principles.  While I believe that each of the interventions had good intentions, the unintended consiquences have led to the need of further intervention, perpetuating the problem to the brink of disaster.  Now the programs that were put into place to help people have homes are leading people to lose those homes.

As I read back through the regulations and the list of principles, I can only find one isnstance that was neccesary.  Part of HUD’s existance is because of the discrimination that was happening against black people by lending institutions = upholding moral standards.

The Free Market and Capitalism are not the cause of the economic problems facing America today.  Perhaps it is time to try these sytems for a change.

This entry was posted on Monday, February 16th, 2009 at 2:38 am and is filed under America in Crisis, Constitutional Issues. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.