Business as usual: All Wall Street’s a stage

“All the world’s a stage, And all the men and women merely players: They have their exits and their entrances; And one man in his time plays many parts…” – Shakespeare

Capitalism’s received quite a blow to its reputation in the past few years. We’ve been told that a strange breed of men, in lustful pursuit of profits, brought the entire world economy down. These men, so unlike ourselves, play the parts of the antagonists. Investment bankers, corporate CEOs, mortgage brokers, oil executives, whoever the hell they were –  these people, we’re told, are the villains in the great tragedy that is the financial crisis.

To that end, the government has taken unprecedented measures all aimed at taming the ‘unruly spirits’ of the free market. The argument goes that if we simply regulate enough, we can keep the harmful forces of greed and risk-taking from spiraling out of control. 

Now, it would be one thing for us to take such bold regulatory measures and to spend trillions of dollars if our reasons for doing so were based on conclusive factual evidence indicating that it was indeed a lack of government oversight that lead to financial collapse. 

After all, as Obama himself has said, “it is only by understanding how we arrived at this moment that we’ll be able to lift ourselves out of this predicament.”  Of course; how else do we learn if not from our mistakes? 

Yet much evidence points at the fact that it wasn’t a lack of regulation, but an excess thereof, that caused the financial crisis. And those facts – and facts they are – are being blatantly dismissed even as the United States moves through arguably the largest economic reform in its history. 

Despite the rhetoric, the Obama administration (and the Bush administration previously) seems to have little interest in encouraging a genuine understanding of the roots of the crisis. 

In a speech before Congress at the end of February, Obama again blamed deregulation of the financial system: “Regulations were gutted for the sake of a quick profit at the expense of a healthy market. People bought homes they knew they couldn’t afford from banks and lenders who pushed those bad loans anyway.”

No one is denying that risky investment was one factor in the financial collapse. But to blame everything on something as unquantifiable as greed – the pursuit of “a quick profit” – while ignoring the much larger and more measurable influences is truly disingenuous. 

The facts are as follows. Former Fed Chairman Alan Greenspan created an excess of easy, “cheap money” when he lowered interest rates to record lows of 1 and 2 percent in the early 2000s. What followed was a speculative frenzy in the real estate market which sent home prices through the roof. Meanwhile, government-sponsored enterprises Fannie Mae and Freddie Mac ballooned larger and larger, buying more and more risky loans from other lending institutions and socializing those risks to taxpayers. The Community Reinvestment Act of 1977, in the interest of further encouraging homeownership, forced banks and other lending institutions to make loans to low-income individuals who they wouldn’t normally lend to. (Perhaps Obama should have explained that the banks who “pushed those bad loans” where doing so only because the government was pushing them to do so.) 

If the administration was truly interested in evaluating the root causes of the financial crisis, it would lay all the facts on the table, not just those that are politically viable. 

I’m no economist, but I do have a profound interest in studying the subject; there’s just something about economics and the logical, quantifiable way it looks at the world. And from what I’ve learned, I’ve come to the conclusion that capitalism is neither good nor bad, but merely the productive outlet of a free and prosperous nation.  

Because the truth is, the actors on Wall Street and Main Street can only play out their parts according to the stage they’re placed on. Leave them to perform their roles in peace — to create, to buy, to sell, to trade — with minimal interference and you’ll see the intricate scaffold of the free market system begin to take shape. On this stage, prices, acting as signals to both suppliers and demanders, always tend toward equilibrium. 

It’s when the stage changes that the story changes; distort the very markets that make up our economy and the tale takes a tragic turn. Bubbles balloon and pop, markets collapse, credit freezes.

If everything is considered – and if our leaders were truly open with us – they would admit that over-regulation, not deregulation, played a key role in creating the financial crisis. Federal Reserve policies led to interest rates that made loans seem like must-haves for people who could not afford them, while legislation forced bankers to make loans to those high-risk lenders. And that’s just the beginning of it.

But you don’t have to take my word for it. I only ask that if you take one moral from this story, it’s that you do your own homework: Find out for yourself what the facts are, precisely so that you can gain the very “understanding” our president speaks of. 

Marlize van Romburgh is a journalism senior with an economics minor and the Mustang Daily editor in chief.