You can't lend money if you don't have it. And beginning in 2001, the Federal Reserve made sure lots of people had it. In January 2001, when President Bush took office, the federal funds rate, the key benchmark for all interest rates in this country, was 6.5 percent. Then, in response to the meltdown in the technology sector, the Fed began cutting the rate. By August 2001, it was at 3.75 percent. And after the terrorist attacks of September 11, the Fed opened the spigot. By the summer of 2002, the federal funds rate was 1 percent.
No mention of the reason for the low rates i.e. to spur economic growth. The administration wanted to PROVE that tax cuts cause enough economic growth to grow government revenue. The way to do that if the tax cuts aren't really working is to keep lowering the interest rate. Now that the whole house of cards has fallen down, it is very silly to be saying that less government would be the solution.
I would say that in June of this year I was a hardcore libertarian, and I have been pretty much since I had become politically aware, but after digging through the events and the economics of the crisis, my mind has changed. When it comes to financial markets, they are going to swing. But government's role should be to force publicly traded companies to have transparent books, and the financial industries where anything but transparent in the last few years. A stronger SEC would have helped in that regard.
When a company engages in systemic risk, it discounts that risk by the amount of the system the company doesn't occupy (e.g. if Goldman does something that will create a 10% chance of a $100 billion dollar loss, spread evenly across the financial industry as a whole, and if Goldman only makes up 5% of the industry, Goldman will only take into consideration a 10% chance at a $5 billion loss. The other $95 billion isn't their problem and their shareholders could sue members of the board if the board allowed the company to take it into account).
You can't lend money if you don't have it. And beginning in 2001, the Federal Reserve made sure lots of people had it. In January 2001, when President Bush took office, the federal funds rate, the key benchmark for all interest rates in this country, was 6.5 percent. Then, in response to the meltdown in the technology sector, the Fed began cutting the rate. By August 2001, it was at 3.75 percent. And after the terrorist attacks of September 11, the Fed opened the spigot. By the summer of 2002, the federal funds rate was 1 percent.
No mention of the reason for the low rates i.e. to spur economic growth. The administration wanted to PROVE that tax cuts cause enough economic growth to grow government revenue. The way to do that if the tax cuts aren't really working is to keep lowering the interest rate. Now that the whole house of cards has fallen down, it is very silly to be saying that less government would be the solution.
I would say that in June of this year I was a hardcore libertarian, and I have been pretty much since I had become politically aware, but after digging through the events and the economics of the crisis, my mind has changed. When it comes to financial markets, they are going to swing. But government's role should be to force publicly traded companies to have transparent books, and the financial industries where anything but transparent in the last few years. A stronger SEC would have helped in that regard.