Reason #67: This Didn’t Have to Happen!

Unfortunately, the boom and bust cycle of recent years is nothing new. Back in the 1920s, our financial system acted the same way. The good times were never going to end, so greedy traders just kept buying and buying, and borrowing and borrowing to do it. Then the party ended. The overvalued stock market crashed, all that easy money dried up, and billions of dollars in bonds went into default. Then banks started to collapse because, just as today, their ledger books were loaded with delinquent loans. Pretty soon, all that bad debt took them under.

There’s no reason why the same thing won’t happen again now -especially since we’re acting like we’ve learned nothing from our own history.

Time and time again, they flood the system with liquidity to keep the boom and bust cycle spinning. That’s not wise fiscal policy. That’s just more shortsighted, subprime thinking.

The worst thing about our situation today is that, unlike in the 1920s, Washington does have the power to prevent calamities like the collapse of the housing market. In the years since the 1929 crash, Congress has repeatedly given federal agencies and regulators broad powers to keep greedy Wall Street in check. But politicians and our economic leaders have simply refused to rein in their financial cronies.

Back in 1994, for instance, Congress gave the Federal Reserve the authority to stop mortgage brokers from underwriting risky home loans. But Alan Greenspan didn’t use his new power. He didn’t want to admit there was a problem, because that might mean his zeal for the free market was misplaced. Now, over ten years later, subprime loans are threatening our nation’s economic health and Americans are being thrown into the streets.

These days, the only time Washington acts is after the fact, when they squander our tax money and sacrifice the strength of the dollar to correct Wall Street’s blunders. Time and time again, they flood the system with liquidity to keep the boom and bust cycle spinning. That’s not wise fiscal policy. That’s just more shortsighted, subprime thinking. And just like eighty years ago, it’s incredibly dangerous.

NEXT: A More Patriotic Private Sector